Ignore China’s economy at your own risk.
That’s the message that Société Générale strategist Albert Edwards is sending to US investors.
“A few years ago, every Chinese data release moved global markets. Now investors barely give China’s economic data a second glance. That could prove costly,” Edwards wrote in a note to clients on Tuesday. “Ignoring China’s recent monetary tightening could prove to be the biggest investment mistake of the decade.”
Edwards is talking specifically about the current contraction in bank lending in China, measured by the China Credit Impulse, or the change is China’s credit growth relative to its GDP. It’s falling, and historically, that has meant trouble for US stocks.
The connection might seem dubious, but Edwards laid out his argument through a series of charts.
Essentially, a decline in bank lending in China is a signal that the global economy could be starting to slow, therefore hurting the earnings and stock prices of US firms.
One of Edwards’s charts illustrated the relationship between China’s Credit Impulse and US analyst optimism, or the percentage of analysts issuing positive earnings forecast upgrades.
While analyst optimism is still strong, the chart implies that it could be set to dip below 50%.
Societe Generale
Then there’s the knock-on effect to stock prices. The chart below shows the relationship between China’s Credit Impulse and year-over-year S&P 500 returns. It implies US stocks could be headed for flat returns ahead.
Societe Generale
Edwards also drew the connection between China’s Credit Impulse and the ISM Manufacturing Index and global commodity prices. Both are set to nosedive if the correlation to Chinese lending holds true.
“The charts below show how the China Credit Impulse correlates with all things cyclical,” Edwards wrote. “Of course correlation does not imply causation but you would ignore these charts at your peril. My job here is to humbly offer these up so as to make the reader stop and think — that is all.”
Societe Generale
While Chinese lending growth has slowed, the Chinese economy has expanded by 4.7% in the first half of 2026.
US economic growth is also expected to remain strong, though negative job growth and poor retail sales recently have worried investors that the economy is weakening.
