Global investors are currently seeking clues about the state of the Chinese economy beyond official data, with a series of informal economic indicators issuing red warnings, prompting many to withdraw from global assets affected by China's economic slowdown.
From stock markets in London to Bangkok, from the Australian dollar to New Zealand dairy prices, and from stock prices of luxury behemoth LVMH to mining companies like BHP and Las Vegas Sands casino group, all have been dragged down by the slowdown in China's economy and the slump in its stock market.
After the end of the COVID-19 pandemic, due to the lack of expected recovery in consumer spending and the real estate market, most analysts believe that the world's second-largest economy will fail to achieve its 5% growth target this year. Behind these headlines, issues such as shrinking current account surpluses, surges in deposits, and surveys indicating weak confidence have caused severe pessimism among both investors and consumers.
Sat Duhra, Portfolio Manager at Janus Henderson, mentioned that by tracking seven indicators including PMI, real exchange rates, current account, growth expectations, and liquidity, China's current economic performance is quite weak. Duhra's fund invests in the Chinese market but steers clear of economically sensitive sectors like banks, real estate, or industry.
As one of the most important trading partners for multiple countries or economies, China's softening economy is dragging down the export performance of these nations. Fonterra, the world's largest dairy exporter from New Zealand, has reduced its milk price forecast twice in a month due to decreased demand from major importing regions including China. BHP reported its worst annual profit in three years, while South32 mentioned that its profits fell by nearly two-thirds, reflecting the negative impact of China's economic weakness on major trading partners or related industries.
Seema Shah, Chief Global Strategist at Principal Global Investors in London, believes that the economic slowdown has impacted Europe, linking the fate of German manufacturers to that of their Chinese clients. Given China's current economic performance, it presents an even bleaker outlook for Europe's future economic growth.
After China lifted COVID-19 controls, investors had been preparing for a rise in various assets like BHP, the Australian dollar, and iron ore. However, China's economic performance, especially the downturn from the beginning of this year, has caught investors who hoped to "ride the fast train" of China's economy off guard.
Zuhair Khan, Portfolio Manager at UBP Investments, stated that aspects like continuous drops in consumer and producer prices, and a youth unemployment rate exceeding 20%, indicate that the Chinese government needs to take swift and positive measures, although no effective actions have been observed so far. Khan suggests short selling or avoiding assets related to China.
Data shows that Chinese tourists heading to the popular destination of Thailand are only a third of the levels before the pandemic. Jagdeep Ghuman, Portfolio Manager at Nuveen, mentioned that the theme of China reopening has played out to some extent, but it hasn't met most people's initial expectations.
