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China’s economic performance in 2023 was characterised by subdued growth, property sector challenges, and disinflationary pressures. The country also witnessed a downturn in its equity market. What is the forecast for 2024? This is what investment experts are saying regarding China’s outlook.
China Economy
The World Bank informs that China’s economy is expected to experience a growth rate of 5.2% in 2023, followed by a slowdown to 4.5% in 2024. “The (China) outlook is clouded by continued weakness in the real estate sector and persistently tepid global demand in the short term, as well as structural constraints to growth, including high debt levels, population ageing, and slower productivity growth than in the past,” it adds.
According to Axa Investment Managers, the future trajectory of China’s economy seems to be closely tied to the actions of the central government. “Should it provide adequate and timely supports to meaningfully restore consumer and investor confidence, we would anticipate a brighter 2024 and a more stable 2025,” says the asset manager.
Meanwhile, Goldman Sachs maintains its view that China faces a challenging long-term growth outlook, citing several reasons.
“First, the property downturn is likely to endure…Second, China’s ongoing demographic deterioration will require the country to reinvent its growth model with a persistently shrinking working-age population. Third, a modest cyclical rebound in exports is unlikely to reverse the ongoing diversification of global value chains away from China and toward some of its peers,” explains the investment bank.
China Equity
Chinese stocks faced a challenging year in 2023, with its equity market suffering considerable outflows. Looking ahead, what is the outlook for equities in 2024?
“Reasons prompting concern around investing in China may be improving, yet growth is unlikely to surprise on the upside given the property market overhang. Volatility is likely to remain characteristic of Chinese stocks in 2024,” says Charles Schwab.
On the contrary, JPMorgan Private Bank asserts that its optimistic outlook on large-cap China internet stocks is reinforced by government policies fostering innovation and backing the digital economy.
“Some of these names are now trading close to last October’s lows, yet earnings visibility into 2024 remains reasonably high…Given the lack of new measures, we stay cautious on the property sector,” says the private bank.
RBC Wealth Management suggests that there will be chances to achieve additional returns (alpha)in Chinese equities in 2024.. “…particularly in industries where China has competitive advantages or which can benefit from policy tailwinds, such as advanced manufacturing and health care,” states the asset manager.
Besides, BNP Paribas Asset Management emphasises that the prospects for Chinese assets in 2024 rely on additional measures aimed at enhancing sluggish growth. “If the authorities continue with their recent assertive policy easing, market sentiment should improve, and we believe there is a reasonable chance for a sustained rebound in Chinese stocks in 2024,” opines the asset manager.
China Bonds
Like Chinese equities, the country’s bond market has also had a rough 2023 due to ongoing domestic pressures. During the period from January to September 2023, Chinese sovereign bonds experienced a net outflow of $31.7 bn as foreign investors withdrew their investments.
However, Ninety One maintains a positive China outlook on bonds for next year. “We think an uneven growth recovery and muted inflation will keep Chinese monetary policy supportive for yields. The onshore Chinese yuan (CNY) bond market should continue to reflect domestic dynamics, making it a useful portfolio diversifier,” writes Alan Siow, Portfolio Manager at Ninety One.
The appealing real yield on China’s government bonds will persist, driven by a low inflation environment, bolstering the demand for Chinese onshore bonds, projects Fidelity International. Meanwhile, the asset manager maintains a cautiously optimistic outlook about the Chinese high-yield market.
“Even so, we may see some short-term liquidity squeezes in the onshore bond market, driven by investors’ expectations of future policy support and an increasing supply of government bonds driving yields up further,” adds Fidelity.
Separately, PineBridge Investments recommends steering clear of specific segments within China’s high-yield market in 2024, including distressed Chinese property names and the local government financing vehicles of the country. “…and credits that lack a financial buffer in light of the bumpy recovery in China, as well as corporates without reliable access to local funding channels and credits that have rich valuations relative to their fundamentals,” contends PineBridge.
