(BFM Bourse) – The Chinese market has completely missed the rally in the major world markets, with the CSI 300 falling 13.7% since the start of the year. Can the prevailing pessimism among investors be reversed next year?
If there was one big market to avoid this year, it was China. Over the whole of 2023, the CSI 300, which brings together the largest capitalizations of the Shenzhen and Shanghai stock exchanges, has plunged by 13.7% since the start of the year.
A variation that is light years away from the 17.35% increase in the CAC 40 or even the S&P 500 (+23%). Even the London Stock Exchange, the ugly duckling of Western markets, is up slightly (+1.3%). Let us point out in passing that the Hang Seng of Hong Kong is suffering just as much if not more (-15.1%). The CSI 300 is at its lowest level since January 2019.
The year 2023 took the form of a cocktail of unpleasant surprises in China. The economic situation has continued to disappoint, with growth likely to turn out to be less than 5%, the Chinese executive’s objective, with the IMF counting right on a rate of 5% this year.
According to Bank of America, foreign direct investment in China even fell into the red in the third quarter for the first time since the American bank has been tracking it.
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Real estate is suffering
Real estate continued to weigh on activity, with fears of bankruptcy surrounding the real estate developer Country Garden from the summer of 2023 but also and again Evergrande, whose financial restructuring worried investors. More broadly, real estate is doing poorly, with new property prices falling in October for the fourth consecutive month, while stone “represents around 70% of the wealth of Chinese households”, explained Jie Zhang, analyst, in June. at the independent design office AlphaValue.
And according to a study by the French Treasury from August 2022, real estate in China represents between 14% and 30% of local GDP, which at the top of the range constitutes a higher proportion than that of the United States before the subprime crisis of 2008.
“Global investors have been bearish on China for most of 2023, with deepening debt and property market problems adding to disappointment over Beijing’s response to the questions relating to post-pandemic recovery,” Chi Lo, strategist at BNPP AM, explained at the end of November. “The most widely held forecast at the time of writing was that GDP growth would be between 4.5% and 5.0% in 2023 and 2024. Stock markets responded by falling, despite valuations that seemed already cheap,” he then explained.
Scalded investors
To make matters worse, the Moody’s agency downgraded the outlook for the country’s credit rating in early December, worrying about the debt of certain cities and provinces which could push the central government to intervene. Which increased the pressure on Chinese markets.
Geopolitical tensions with the United States also weighed on investor confidence. In a fight over technological sovereignty, Washington has, for example, tightened its grip on graphics card manufacturer Nvidia, further restricting the export of its graphics processors (GPUs) to China. Washington’s goal remains to slow the country’s progress in generative artificial intelligence, particularly in military and scientific applications.
The result is a pronounced disenchantment with China among foreign investors. “Chinese stocks have largely missed the general recovery (…), a lesson from our marketing is that caution remains in order with regard to China, investors not being willing to re-engage after the setbacks suffered by many ‘among them this year,’ Barclays bank said last week.
Attractive stocks?
Can 2024 mark the year of rebound? Not necessarily. UBS expects a further deceleration in growth, with GDP growth limited to 4.4%. The Swiss bank believes that the weakness in real estate will continue to weigh on investment as well as consumer confidence. Goldman Sachs is a little more optimistic, expecting growth of 4.8%.
“In the absence of any convincing structural reform package, it could be difficult to end the widespread pessimism that characterizes China’s long-term outlook,” Lombard Odier warns in its outlook for 2024. The market intermediary also notes that the “consensus also seems to agree on the maintenance of a competitive and hostile policy (in the United States, Editor’s note) towards China as well as on the need to strengthen the economy in the face of what the authorities perceive as a Chinese threat , notably through customs duties and limited access to American technologies. The Swiss private bank therefore prefers other geographies (United States, United Kingdom) to China.
“If the authorities continue their recent easing policy (monetary, via liquidity injections, editor’s note), market sentiment should improve and we believe there is a reasonable chance of seeing a lasting rebound in stocks Chinese companies in 2024″, judges Chi Lo of BNPP AM.
“Investors appear to be waiting for a time when more effective and larger stimulus measures will be taken in favor of the real estate sector, as well as more clarity about the Taiwan election in January,” notes Barclays. The British bank, however, considers Chinese stocks attractive, because confidence and positions have now reached the bottom of the pool.
Julien Marion – ©2023 BFM Bourse