With China, it’s always hard to tell. But the big question is, are things really different for China this time around as compared to all their promises over the last few years? They’ve definitely stepped up the rhetoric but I want to say that actions speak louder than words at the end of the day. Chinese equities have endured a rough period of three straight years of declines but they will be snapping that in 2024. However, it owes much to the brief surge right before the Golden Week holiday going into October:
CSI 300 index weekly chart
Domestic demand conditions are extremely subdued. And when you couple that with low inflationary pressures and the collapse of the property sector in recent years, it’s tough to build things back up from the ground. That is not to mention the more challenging outlook globally with Europe supposedly wanting to diversify from China and the ongoing trade war with the US. The latter is set to intensify further once Trump takes office next year.
There’s been a lot of big promises from Beijing to do more as per their big announcements since the lead up to the Golden Week holiday. But as seen by the chart above, investors are still holding some reservations.
The surging rally has come to a halt and there has been some consolidation only afterwards. A sign of caution perhaps? Or are investors biding their time for the next big announcement to dive back in again?
China has always been an interesting opportunity for investors no matter where you’re from. The last few years have been tough but that is expected as their handling of the Covid pandemic has been less than ideal. Hence, the rebound has been much slower.
I want to say there’s a lot of investor “angst” towards China but not in the traditional sense. It’s more of a case that investors tend to regard China as a strong growth hub and recent years have made valuations there very, very cheap. So, it’s a case of them wanting China to bounce back and to get in on the action.
I don’t think we’re reaching a point of desperation just yet. But perhaps we’re arguably at a stage where investors are trying to will something to happen on just about any optimistic sign they can get.
That could lead to a couple of modest bounces for Chinese stocks as we look towards next year, similar to the spike seen above.
But in the bigger picture, I want to say that Beijing has to do more on the fiscal front to really convince. They can pull whatever numbers out of their behind on the economy but it’s not a great indication when nobody believes it.
And with the demographic challenge that China is facing over the next few decades, it’s going to be a major issue if they can’t steer the ship in the right direction from the onset. Japan 2.0 may be the future that they are looking at.