China’s GDP reaccelerated in Q3. Photo by China Photos/Getty Images.
The long-feared, rarely seen, Chinese hard landing remained elusive last Friday as China reported Q3 GDP growth of 7.8% y/y—the first acceleration in three quarters. Sure, it isn’t the double-digit growth of yore, but for global stocks, it doesn’t need to be—a modest pick-up in China, coupled with reacceleration worldwide, should provide a swift tailwind to corporate revenues (and stocks).
Since 2011, investors globally have fretted a significant pullback in the Middle Kingdom—even if China avoided a recession, folks feared markedly slower growth in the world’s second largest economy would weigh heavily on corporate profits globally. It’s true China has slowed some, but nowhere near to the degree feared. GDP grew 8.9% in 2011, 7.9% in 2012 and (if you believe official statements) is on track to hit the 7.5% target this year. That’s plenty high enough for China to continue contributing mightily to global trade and economic growth. The growth rate might be a touch slower than the heady double-digit days of yore, but since the country is growing off a much larger base, its dollar-based contributions to global GDP are holding firm. Looking ahead, China could slow further over the coming years and still add about as many (if not more) dollars to global growth. Which means plenty of Chinese demand for developed-world goods and services, boosting revenue streams for multinationals.
China is just one cog in a global reacceleration. For example, the eurozone appears to be out of recession. GDP grew in Q2 for the first time in 18 months, and PMI surveys and Leading Economic Indexes overwhelmingly suggest growth continued in Q3. Sure, regional growth might not be gangbusters for some time, but even a slow-growing eurozone is a big global economic positive. For the last 18 months, a bloc representing nearly 20% of the world economy detracted from growth. Now, it’s adding. The implications are already visible in global trade—many nations’ exports to the eurozone are rising.
One beneficiary of a growing eurozone is the UK, which is also growing faster. Rising exports to the eurozone have helped, but domestic industry and services are growing, too. GDP accelerated in Q1 and Q2, and consensus estimates are for an even faster reading in Q3 as the yield curve continues steepening.
Japan, too, is growing again. Whether growth proves sustainable remains to be seen—and likely rests on Prime Minister Shinzo Abe’s ability to enact politically difficult economic reforms—but for now it’s in the add column. As is Australia, if PMI surveys are any indication. In September, Australia’s manufacturing PMI moved into expansion for the first time since June 2011. The country’s yield curve is also positively sloped again, creating a more favorable environment for bank lending and business investment.
Add in a stabilizing—if not reaccelerating—China, and you get a big opportunity for corporate revenue growth looking ahead. This is a change from recent quarters, when companies with revenue streams concentrated in the US had stronger earnings growth overall and on average. Now, with the rest of the world kicking into gear, big firms with globally diverse revenue streams should be well-positioned for growing sales and profitability.