February 14, 2024

Chart of the Week – Chinatown

By Nathan Sweeney

Welcome to the Chart of the Week.

The Chart of the Week highlights that foreign investor flows into China turned negative for the first time in 2023. China’s economy faces several headwinds: weaker economic growth, a crisis in the property sector, and deflation.

The country is also contending with weaker overseas demand because of the trend of nearshoring, where companies bring production closer to home. This was demonstrated in July last year when Mexico overtook China as the US’s largest trading partner.

This year, we have seen stimulus measures announced. China’s central bank cut its reserve requirements, allowing banks to lend more money rather than holding it on their balance sheets.

Other measures introduced this year include restrictions on short selling and consolidation of the banking industry by merging small rural lenders into larger banks, intending to reduce the likelihood of financial stress.

China’s economic stimulus measures have so far failed to reassure markets, with investors seeing them as too small and insufficiently targeted.

However, we believe this support will eventually feed through into the economic data and that the measures announced already this year signal Beijing’s intentions to ramp up policy support.

However, in the absence of bazooka-style stimulus measures, markets will need to see this support being sustained on a continuing basis.

It is worth emphasising that China is the second-largest economy in the world, so this is an equity market that investors cannot ignore.

China is home to many innovative companies, especially in technology and areas related to clean energy, such as solar power, electric vehicles and batteries. One Chinese company to which we have exposure in our portfolios is BYD, which recently overtook Tesla as the world’s largest electric vehicle manufacturer. Businesses like this demonstrate the enormous potential of the Chinese economy and the growing ambition of the nation’s companies to compete on a global scale.

While China’s economy and its equity markets face headwinds in the Year of the Dragon, few can doubt the potential of this economic powerhouse to reach new heights over the long term.

Takeaway: Pessimism brings opportunity.

Did you know: Danish drugmaker Novo Nordisk has been “surprised” by the readiness of European consumers to pay for weight-loss drugs from their own pockets, as the region’s largest company invests in new supply to meet runaway demandClick here.

Marlborough Podcast: This week, we discuss interest-rate cut concerns, earnings season and declining oil prices. Click here.

Marlborough Blog: Keep a look out for Ben’s blog on the Chinese New Year.



Author: Nathan Sweeney, CIO Multi-Asset, Marlborough Group

Source: Marlborough Multi-Asset Investment Team, Chartr, Bloomberg, Yahoo Finance

Important Information: This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Clever to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. You should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine – together with your own professional advisers if appropriate – if any investment mentioned herein is believed to be suitable. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice.

All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. Issued by Clever Adviser Technology Ltd (Clever), a company registered in England and Wales (company number: 2910523) with registered office at Watergate House, 85 Watergate Street, Chester, Cheshire CH1 2LF.

Meet the Author

Nathan Sweeney

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