CHINA: We see recent China economic growth and debt concerns as having limited impact on global markets. We are more concerned by rising US bond yields and oil prices. China is an economic giant but a relative capital markets minnow. Its stocks are already some of the world’s cheapest, and foreign investors already very underweight. Its GDP growth is disappointing, and structurally down-shifting, but will still be among the world’s strongest this year. Whilst recent US GDP growth outperformance has lessened its immediate global impact. China has the policy flexibility to respond. From high real interest rates and domestic savings to capital controls, state owned banks, and its overwhelmingly local currency debt. The response will likely be measured, but this may be enough for the brave with expectations so low. @ChinaTech and @ChinaCar.
MACRO: China is the world’s largest manufacturer, its second largest economy, and the largest source of global consumption and commodities growth (see chart). It accounts for over a fifth of global consumption growth this year and 70% of oil growth. This drives big economic linkages, from Germany (DAX) to Australia (ASX), but also from EV’s to luxury, and LVMH (MC.PA) to NVIDIA (NVDA) and Rio Tinto (RIO). Its growth weakness this year has been both a symptom of the world’ manufacturing and trade recession, and caused by the caution of its own consumers.
MARKETS: China has been opening its capital markets to foreign investors, but they are still relatively small on the global stage. And foreign investors underweight even these small levels. Whilst the correlation between Chinese and global stocks is low. This is the opposite of the US’s super-sized equity, bond, and FX markets. Similarly, Chinese stocks are very domestically focused, with under 15% of revenues from overseas, that is one of the lowest figures globally.
All data, figures & charts are valid as of 16/08/2023.