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Investors Pull Out of Global Assets as Informal Gauges Signal China’s Economic Slowdown

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Investors are growing increasingly concerned about the state of China’s economy, as a range of informal indicators flash warning signs of a slowdown. This has prompted many to withdraw from global assets that are exposed to the Chinese economy, resulting in the sell-off of stocks and impacting various sectors from luxury goods to mining and casinos.

Despite the post-pandemic period, China has failed to witness a sustained recovery in consumer spending or a thawing of the near-frozen property market. As a result, analysts now predict that the world’s second-largest economy will miss its 5% growth target for this year.

Looking beyond the official data, investors are even more pessimistic when considering higher-frequency and more intricate data. These indicators include a shrinking current account surplus, surging deposits, and soft surveys that point to a deep-seated confidence problem within the Chinese economy.

Sat Duhra, a portfolio manager at Janus Henderson, explains that the situation is “pretty weak,” with weak PMI surveys and downward revisions of GDP growth. As a result, he sees no reason to adopt a bullish view on China at this point. While his fund invests in China, it avoids economically sensitive sectors such as banks, property, or industrials.

The impact of China’s slowdown is not limited to its own borders. New Zealand, for example, has seen reduced demand from key importing regions, leading to a cut in its farm gate milk price forecast by the world’s biggest dairy exporter, Fonterra. Seema Shah, Chief Global Strategist at Principal Global Investors, notes that Europe is also feeling the effects, as the fortunes of German manufacturers are closely tied to those of their Chinese customers. Shah also warns of the risk posed to U.S. equities by the Chinese slowdown.

Even in Japan, which has been the stock market success story of the year so far, investors are shorting or avoiding companies that heavily rely on Chinese sales. Zuhair Khan, a portfolio manager at UBP Investments, suggests that an aggressive policy response is needed to address the scale of the problem, with data revealing falling consumer and producer prices and youth unemployment rates exceeding 20%. However, such a response has yet to materialize.

While some investors remain bullish, seeing potential for the resumption of group travel and increased Chinese spending on luxury goods, others are adopting a more cautious approach. Prashant Bhayani, Asia Chief Investment Officer at BNP Paribas Wealth Management, believes it is now a waiting game for valuations to reflect more realistic assumptions. Jagdeep Ghuman, a portfolio manager for U.S. asset manager Nuveen, highlights that the initial expectations of China’s reopening have fallen short, resulting in volatility in the shares of companies involved.

As China’s informal gauges continue to flash red warnings, investors are left grappling with the uncertain trajectory of the country’s economy. With a lack of aggressive policy responses and ongoing challenges, the impact is reverberating across global markets, affecting various sectors and prompting a cautious approach among investors.

More detail via Reuters here… ( a )

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