Any scrap of data from China is pounced upon, in keeping with the country's status as the world's second largest economy and the largest source of capital markets issuance in Asia.
The second statistic is particularly important to bond investors, as it means a chunk of their portfolio will always be tied to the Chinese economy. But the way in which the buyside has been interpreting Chinese economic data has changed over the past couple of months.
Conventional thinking holds that when economic data is poor investors ought to worry about the cash flows or fundamentals of the companies whose bonds they hold.
That does not necessarily mean a rush to the exit, since there could be a chance the data is a one-off. But when an economy has shrunk for a prolonged period of time, it’s usually a good bet that a sell-off will occur.
Not so with China. Last week’s HSBC China Manufacturing PMI data, which stood at 48.9 for April, the lowest level in a year, had come on the back of first quarter GDP growth of 7% — the worst since 2009. It’s well documented that China’s economy has been slow for a while.
Investors hardly batted an eyelid, though. The iTraxx Asia ex-Japan Investment Grade Index’s five year spread has hovered around 106bp-107bp since April 24.
This resilience is not because bondholders somehow think that the companies they are exposed to are all going to outperform the market, but rather because they increasingly calculate that weak data will generate a response from the government.
And with good reason. China can be a tougher proposition than some economies when it comes to investors' ability to pre-empt government policy, but plenty of precedent has now been established. China lowered rates for the first time in more than two years in November 2014, before another round of cuts in February this year.
Those two rate cuts were followed by the lowering of the reserve requirement ratio (RRR) for all commercial banks in April.
The muted reaction to the latest data suggested that investors were betting on a similar response. Sure enough, China's central bank announced on May 10 that it was lowering lending and deposit rates by 25bp.
Even better, if market chatter is to be believed, the government is also considering stepping up fiscal spending if the economy continues to slow down, which will certainly be good news for infrastructure-related companies.
Poor data has never been more welcome to some investors, not least because the market value of the bonds they are holding will automatically go up when loosening policies such as rate cuts occur. When it comes to China, maybe bad really does mean good.