Silk Roadblocks

What’s going on?

China’s giving investors a pep talk, but it’ll have to overcome some serious obstacles to boost their confidence.

What does this mean?

2023 was pegged as China’s comeback year – a chance for the country to shake off the lingering pandemic blues and regain its mojo. But it’s been more of a wobble than a confident strut so far, with consumer spending and the property market still on shaky ground. That’s spilled over into markets too, with the CSI 300 – China’s main stock index – dipping 3% this year. To try and get investors back on side, Chinese regulators are rolling out the red carpet: slashing broker transaction fees, mulling longer trading hours, and giving a thumbs-up to share buybacks too.

Why should I care?

The bigger picture: Shaky foundations.

While these moves might soothe market jitters, they’re really just papering over the cracks. Just take a gander at China’s property sector, which makes up about a quarter of the country’s economy. Nearly half of state-owned property developers are in the red for the first half of the year – stoking worries the housing crisis is spreading from the private sector to companies that have government backing too. And that’s bad news: if state-owned companies can’t finish the projects that private companies dropped, it could further dent homebuyer confidence. That means that all eyes are now on the central bank’s recent hefty interest rate cut, in the hope that it’s the magic elixir the market needs.

Zooming out: Prophets of doom.

China once set its sights on a 5% growth target for 2023, and at the time, that goal seemed almost unambitious. But even that modest aim might be out of reach now, and banks are already dialing back their optimism: Nomura’s betting on 4.6%, Morgan Stanley’s at 4.7%, and JPMorgan’s chimed in with 4.8% – the best of a bad lot.

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Originally Posted August 18, 2023 – Silk Roadblocks