Thank China for the US market rally, analyst says

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Thank China's economy for record highs in U.S. stocks, one analyst says.

"China growth has been a key driver of asset prices," Keith Parker, head of global equity strategy research at Barclays, said in a Monday note titled, "China is mattering as much as politics."

Investors have mostly focused on U.S. and European political developments — and sometimes puzzled over the seemingly unrelenting push higher into record territory for U.S. stocks. But Barclay's analysis found that year-to-date performance of stocks, currencies and commodities point to one key factor: better growth in China's old, manufacturing-based economy.

"China nominal growth is at three-year highs," Parker said, while "China's fiscal stimulus and the bottom in oil [have] also helped turn the inflation backdrop" away from global worries of falling prices and slowing growth.

The Shanghai composite is up 4 percent so far this year, while the S&P 500 is up more than 5.5 percent over that time.

The gains have been attributed in part to bets on increased economic growth from the tax cuts, deregulation, and higher government spending promised by President Donald Trump. The president said Monday he plans to spend billions on defense, and traders will watch his Tuesday evening speech for any details on growth-focused proposals.

China isn't always good for markets.

Wall Street has generally worried about China since the summer of 2015, when the Shanghai composite crashed more than 40 percent. Beijing's heavy-handed efforts to stem the decline and weakness in the Chinese currency raised fears of a sharp slowdown in China's economy, the second-largest in the world. Those worries sent U.S. stocks more than 10 percent lower early last year.

Since then, improved economic reports from China on the back of government stimulus have helped U.S. markets stabilize. The Street's confidence has increased so much that Morgan Stanley and BlackRock both recommended the country's stocks in the last few weeks.

That said, most analysts have long distrusted the accuracy of Chinese economic reports. The director of China' National Bureau of Statistics, Ning Jizhe, even wrote in December that "currently, some local statistics are falsified," the Financial Times reported.

This year, Chinese authorities also have more incentive to paint a brighter economic picture ahead of a leadership transition at a Communist Party congress this fall.