Recovery Mission

A resolution to the trade war, coupled with economic stimulus, could signal a turning point for China investors

- Mark Story

At face value, underlying weakness in the Chinese economy hardly makes it an optimal time to be investing in this market. However, with so many dynamics at play, figuring out the likely length and depth of the Chinese slump and how to protect your portfolio or capitalise on new opportunities is a serious challenge.

For starters, the lower earnings of global brands such as Caterpillar, Nvidia and Apple (which recorded a 27% drop in fourth-quarter gadget sales) are directly linked to the severity of the slowdown in what is now the world’s second largest economy after the US.

Official data suggests China’s GDP growth (at 6.8%) is at its lowest level in 30 years. Admittedly, this is a lot stronger than that of most major economies. But independent reports suggest China’s growth could be as low as 5%, with the government keen to mask how much the economy has fallen. A direct casualty of China’s slowdown, the benchmark Shanghai Composite was the world’s worst-performing major stockmarket last year.

Much of the country’s slowdown, with its global knock-on effect, is being attributed to China’s middle-class shoppers simply spending less amid fears that the situation may get worse. China’s reliance on consumer spending can’t be understated, with consumption contributing 76% of the country’s economic growth, according to the latest figures. Julian Evans-Pritchard, a Singapore-based China expert at Capital Economics, estimates that consumer spending in China’s big urban areas contracted by around 3% last year.

With China’s economy looking overly burdened by debt, one key sector to feel the pinch is the mammoth car market, which shrank in 2018 for the first time in almost 20 years. Then there are concerning retail sales, which over the lunar new year holiday grew at their slowest pace in a decade.