Global Equity Managers Brave After China’s Bad Stories – Bloomberg

2023-08-19 05:50:04

China’s economy is slowing down significantly. Equity managers around the world are on guard as the prospects for companies dependent on the country are hurting.

China-linked investments, considered the most promising of the year, are backfiring as China’s property slump threatens to escalate into a systemic crisis. So far, most of the stock-market selloff has been concentrated in China, but pressure is mounting on stocks in Europe, the United States and other Asian countries, where many companies are affected by Chinese demand trends.

Caterpillar and DuPont sounded the alarm regarding China in their most recent earnings calls. Economists continue to cut China’s gross domestic product (GDP) growth forecasts, and investors are looking to de-risk their portfolios.

Caterpillar CEO says slowing demand in China is worse than expected

The MSCI index of global companies with high exposure to China is down regarding 10% this month. It has almost doubled the decline of the broader index of global stocks. Bank of America (BofA) strategists said U.S. stocks might fall regarding 4% more.

U.S. stocks fall 4% as China problem deepens, says BofA Hartnett

“Frankly, the whole world is inextricably linked to China,” said Xu Zhongxiang, chief investment officer at Rayliant Global Advisors. And the source of procurement is China,” he pointed out. “These companies will have to slash their sales from China for the next year,” he said.

China is facing a series of negative factors, with economic indicators for July announced on the 15th falling short of expectations across the board, and a major shadow banking (shadow bank) Sino-Plant Enterprise Group suspending payments to customers. Hekkeien, a major real estate developer, is close to defaulting on its publicly offered bonds. As a result, investors, businesses and consumers’ outlook for the future of the Chinese economy is rapidly deteriorating.

Those concerns pushed Hong Kong and mainland China stock indexes to their lowest level since November 2018 and sent the Hang Seng Index into a bear market. China still dominates the global supply chain and is beginning to affect investor sentiment in Europe and the United States.

“Many asset classes are going to suffer,” said Rajeev DeMero, global macro portfolio manager at GAMA Asset Management. He said he had reduced his exposure to European stocks, commodities, gold and emerging market currencies.

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