China’s rising pork prices worsens outlook of Asia’s largest stock market as scope to stimulate economy is reduced
- Pork prices surged 69 per cent in September, fuelling consumer inflation and reducing the likelihood of policy easing
China’s runaway pork prices spell trouble for the world’s second-largest stock market.
Traders’ hope of further policy easing was dampened when official data on Tuesday showed inflation had already touched the ceiling for the government’s annual target last month, making it harder for policymakers to unleash more liquidity into the economy.
Pork prices, which surged 69 per cent from a year ago in September, were mainly blamed for accelerating inflation, driving up consumer prices by 3 per cent in the month.
The benchmark Shanghai Composite Index fell 0.6 per cent to 2,991.05 at the close, posting the first decline in six days, as investors shifted attention to concerns about economic growth from a tentative China-US trade deal that was reached over the weekend.
Rising pork prices have put the government into a dilemma, as policymakers need to bolster growth, while containing inflation at the same time.
Even Premier Li Keqiang’s pro-growth comment failed to prevent a sell-off. He stressed on stabilising economic growth during a meeting with some provincial governors on Monday as downside pressure on the economy builds up.
China’s pork crisis sends consumer inflation rising to the brink of Beijing’s limit, highest level in six years
“It’s kind of stagflation and the market is worried that the government will be shackled and cannot do more to stimulate the economy by easing policies,” said Wang Zheng, chief investment officer at Jingxi Investment Management, in Shanghai. “Pork prices are now driving up prices of some low-end consumer products. Hog production has its own cycle and won’t increase overnight. So the hangover will continue to weigh on stocks.”
Pork prices, which make up a significant weighting in China’s consumer inflation, are showing no signs of falling, as the herd of breading sows, a gauge of potential supply of the meat, continues to fall, with more pigs being slaughtered amid the contagious African swine fever that ravages every province in the mainland.
China’s pork prices, which reached an average 34.93 yuan (US$4.94) per kg last week, will probably rise above 50 yuan around the coming Lunar New Year that falls in late January, because the flu is not under effective control, according to Pacific Securities.
The 69 per cent jump in pork prices in September was the second-biggest monthly increase since the National Bureau of Statistics began to compile data in 2007. Prices of the meat surged a record 86.5 per cent in August 2007.
In the 2007-08 cycle of increasing pork prices, inflation accelerated to as high as 8.5 per cent, which sent the Shanghai Composite plunging by 65 per cent in 2008, which also coincided with the global financial crisis.
