“ Michael Spencer has a very out of consensus view on China GDP in the attached Global Economic Perspectives (pg 11) – He examines a number of indicators to arrive at the conclusion that GDP growth in China may actually be higher than is officially being reported. Electricity consumption, rail freight traffic, petroleum consumption, the PMI survey and credit data all suggest that, if anything, the authorities may be underestimating growth today.

· Electricity consumption – YTD electricity consumption growth of 4.9% would imply GDP growth of 8.4%ytd – The government reported ytd GDP growth of 7.7%

· Rail freight traffic – Rail freight volume growth has been 1.3%ytd and would indicate ytd GDP growth is 9%

· Gasoline Consumption – Our research suggests that this is a weak indicator of GDP growth however looking at the data, the 2.9% growth in Q3 would suggest GDP growth of 9.3%

· PMI– If we use Q2 average PMI into the regression, we find a fitted value for Q3 GDP growth of 9.6%

· Credit– Credit growth in Q2 would have been consistent with QoQ (saar) GDP growth of 9.6% or about 8% YoY growth

Eoin Treacy's view Thank you for this report which I'm sure will be of interest to subscribers. As you point out this is a very contrarian opinion when the widespread negativity towards China 's economic prospects is taken into account. However, this may at least partially explain why the authorities have been relatively tentative in their easing.

The upcoming political transition to the next generation of leaders is an additional cause of investor reticence. A general sense of anticipation is palpable in China about the prospects for stock market performance once the new administration takes full control. The process will begin this month and come to a conclusion by March of next year.

The Shanghai A-Share Index has experienced P/E ratio contraction on its decline over the last three years and currently stands at 11.65. This level is close to where valuations were prior to the impressive rally from the 2008 lows. The Index has paused in the region of 2100 and the six-month portion of the overall decline has lost consistency. A sustained move below 2150 would now be required to question potential for some additional upside. A sustained move above the 200-day MA, currently near 2350, would suggest a return to medium-term demand dominance.