May's Chinese trade data release confirmed what the macroeconomic data has been indicating: a slowdown in the momentum of demand growth to more sustainable, but still robust levels, as the government implements its cooling measures. Government measures since April have led to the steady withdrawal of liquidity from the economy, as well as a significant drop in property market transactions. In our view, this is a positive, as we do not see the cooling measures as leading to a hard landing for the economy but rather as likely to lead to more sustainable and balanced growth. The outlook is for continued but slower growth in commodity demand.

In more detail, import demand growth moderated across some of the key commodities, but still remained very high: crude oil imports fell to 4.2 mb/d from a record high of 5.12 mb/d in April, but still constituted a 4.4% y/y increase. The data for the base metals was mixed, with slowing import demand suggesting some modest de-stocking. Net imports of refined copper fell for the second straight month, but still remained above last year's monthly average. China returned to being a net importer of both aluminium and lead. Chinese demand for the precious metals also held strong, but we expect demand for palladium to slow as auto sales continue to moderate. Agricultural trade data showed diverse trends, but broadly speaking, imports were lower m/m for cocoa, coffee and cotton while being higher for wheat, soybeans and soybean oil.

David Fuller's view The problem for China's stock market, in my opinion, has more to do with supply than monetary policy, as I discussed again yesterday. But what about comparative valuations as an indication of medium to longer-term potential.

Consider an old fashioned but no less relevant comparison. Today, according to Bloomberg, China's Shanghai A-Share Index sells at an historic p/e of 17.83 and dividend yield of 1.68%. This is more expensive than the S&P 500 Index at a p/e of 15.10 and yield of 2.09, but in your opinion, which of these two markets is likely to see the stronger growth and therefore higher corporate profits over the next 5 to 10 years?

Most of us who are not PRC citizens participate in China mainly via the Hang Seng Index, p/e 14.55 and yield 3.04, and the Hang Seng China Enterprises (H-Shares) Index, p/e 14.23 and yield 2.41%. These figures are slightly more attractive than the S&P. I know which market I would rather invest in on a medium to longer-term basis.

Note:chart patterns indicate that there could easily be some additional near-term downside risk for stock markets.