Credit Suisse analyst Andrew Garthwaite says signs of Chinese economic growth could be a fake-out.

While he’s seen big rallies in areas like emerging-market indexes and mining companies, he argues that the Chinese government hasn’t yet added enough stimulus to the economy to loosen credit conditions. And without lax lending standards, he says industrial production and economic growth won’t improve.

“We need to see credit growth increase and much more fiscal stimulus (which is a quarter of 2015 levels and tenth of 2008/09 levels),” Garthwaite wrote in a recent client note.

Garthwaite isn’t going so far as to bet against a recovery, but he says stocks that are tightly linked to China’s economy have climbed too quickly, which means the rally might be premature. The Hang Seng index in Hong Kong, for example, is up 8.9% this year.

Upon close examination, Garthwaite says the rally doesn’t match the current pace of growth. After all, China’s government said the economy cooled off in 2018 and grew at its slowest pace since 1990.

That slowdown is partly the result of the trade dispute with the US. At the same time, China was forced to tighten credit conditions as the government made big changes to the financial system and tried to handle its debts.

Then, as last year’s slowdown got more severe, the government in Beijing relaxed lending standards to boost growth again. Yet while there have been some positive economic signs — like data from Chinese property developers showing strong demand for homes — Garthwaite says it’s still not enough to sound the all-clear.

Meanwhile, as investors try to wrap their heads around the China situation, they’re also having a difficult time reaching a consensus in the US. While a recent survey showed US CEO confidence dropped to its lowest level in six years, a separate one from the Philadelphia Fed showed resilient expectations for capital spending.

In the end, no matter where you look, it’s become a tall order to get a solid reading on the economy. And it all circles back to Credit Suisse’s main point: don’t buy into any risk trades — including China — until a clearer picture has emerged.

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