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London-based investment research firm Macro Hive highlighted nine "gray swans" that could rock markets in 2024, in a recent report, as quoted on Business Insider. One of them is China.
Macro Hive Strategist John Tierney sees “China grappling with a pandemic that drags its economy into a depression by mid-2024, with Xi Jinping responding to rumors of unrest by turning his back on Russia and aligning his country with the G-20 group of countries”, as quoted on Business Insider.
Grey swan is a term used to describe a potentially very significant event which is possible to occur but the likelihood of that occurrence is small. If it happens, it could shake up the world economy and stock market. Unlike black swans, which are entirely unpredictable, a gray swan is "a low-probability, high-impact event that few expect," strategists said in a research note seen by Business Insider.
Inside the Pain in Chinese Economy
In 2023, China's economy has faced challenges, as the government grapples with the task of reviving growth and preventing deflation following almost three years of stringent zero-COVID lockdown measures.
Moreover, an ongoing property market crisis, which has pushed major developers like Evergrande and Country Garden to the verge of collapse, has added to the troubles for the world's second-largest economy.
Meanwhile, U.S.-China tensions persisted. This especially true with China launching anti-spying crackdowns against consultancies like the US's Bain & Co. and advancing its efforts to undermine the dollar. The U.S. also intends to lower its reliance on Chinese semiconductors and several U.S. companies chose India over China as their pressured manufacturing hubs.
What Could be The Silver Linings in China Investing?
The Chinese economy grew 4.9% year over year in Q3 of 2023, beating market forecasts of 4.4% and offering hopes that it will meet the official annual target of around 5% this year, as continued government stimulus can make up for the impact of a prolonged property crisis and weak trade, per tradingeconomics.
In September alone, retail sales of China grew the most in four months, up for the 9th successive month; and industrial output growth stayed at its highest level since April. Meantime, the surveyed jobless rate dropped to a 22-month low of 5%, while fixed investment continued to expand in the first nine months of 2023. Considering the first nine months of the year, the economy advanced 5.2%.
China is likely to implement proactive fiscal policy next year for the stabilization of growth, per a former central banker, as quoted on Reuters. With interest rates and loan prime rates at low levels, there is more space to cut banks' reserve requirement ratio (RRR) than to cut interest rates, that banker said.
The central bank cut the RRR in September for the second time this year to boost liquidity and support economic recovery. Analysts expect another cut by year-end. China’s policy easing against policy tightening by most other economies can act as a bullish point in its investing scenario in 2024.
ETFs in Focus
Against this backdrop, below we highlight a few China ETFs that lost the least in the struggling period of last one month (as of Dec 8, 2023). This shows that these ETFs are better-positioned to fight against any challenges in the otherwise Chinese economy.
KraneShares China Internet and Covered Call Strategy ETF (KLIP - Free Report) – Up 0.7% Past Month
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (ASHS - Free Report) – Down 1% Past Month
Global X MSCI China Utilities ETF – Down 1.6% Past Month
KraneShares CSI China Internet ETF (KWEB - Free Report) – Down 1.7% Past Month
iShares MSCI China Multisector Tech ETF (TCHI - Free Report) – Down 1.7% Past Month
Global X MSCI China Communication Services ETF – Down 2.2% Past Month
KraneShares SSE Star Market 50 Index ETF (KSTR - Free Report) – Down 3.1% Past Month
Xtrackers MSCI China A Inclusion Equity ETF – Down 3.9% Past Month
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Can China ETF Investing Be a 'Gray Swan' in 2024?
London-based investment research firm Macro Hive highlighted nine "gray swans" that could rock markets in 2024, in a recent report, as quoted on Business Insider. One of them is China.
Macro Hive Strategist John Tierney sees “China grappling with a pandemic that drags its economy into a depression by mid-2024, with Xi Jinping responding to rumors of unrest by turning his back on Russia and aligning his country with the G-20 group of countries”, as quoted on Business Insider.
Grey swan is a term used to describe a potentially very significant event which is possible to occur but the likelihood of that occurrence is small. If it happens, it could shake up the world economy and stock market. Unlike black swans, which are entirely unpredictable, a gray swan is "a low-probability, high-impact event that few expect," strategists said in a research note seen by Business Insider.
Inside the Pain in Chinese Economy
In 2023, China's economy has faced challenges, as the government grapples with the task of reviving growth and preventing deflation following almost three years of stringent zero-COVID lockdown measures.
Moreover, an ongoing property market crisis, which has pushed major developers like Evergrande and Country Garden to the verge of collapse, has added to the troubles for the world's second-largest economy.
Meanwhile, U.S.-China tensions persisted. This especially true with China launching anti-spying crackdowns against consultancies like the US's Bain & Co. and advancing its efforts to undermine the dollar. The U.S. also intends to lower its reliance on Chinese semiconductors and several U.S. companies chose India over China as their pressured manufacturing hubs.
Moody’s has recently cut its outlook for eight China banks on potential credit quality decline after downgrading China’s credit ratings. Moody’s also reduced its outlook for 22 Chinese local government financing vehicles.
What Could be The Silver Linings in China Investing?
The Chinese economy grew 4.9% year over year in Q3 of 2023, beating market forecasts of 4.4% and offering hopes that it will meet the official annual target of around 5% this year, as continued government stimulus can make up for the impact of a prolonged property crisis and weak trade, per tradingeconomics.
In September alone, retail sales of China grew the most in four months, up for the 9th successive month; and industrial output growth stayed at its highest level since April. Meantime, the surveyed jobless rate dropped to a 22-month low of 5%, while fixed investment continued to expand in the first nine months of 2023. Considering the first nine months of the year, the economy advanced 5.2%.
China is likely to implement proactive fiscal policy next year for the stabilization of growth, per a former central banker, as quoted on Reuters. With interest rates and loan prime rates at low levels, there is more space to cut banks' reserve requirement ratio (RRR) than to cut interest rates, that banker said.
The central bank cut the RRR in September for the second time this year to boost liquidity and support economic recovery. Analysts expect another cut by year-end. China’s policy easing against policy tightening by most other economies can act as a bullish point in its investing scenario in 2024.
ETFs in Focus
Against this backdrop, below we highlight a few China ETFs that lost the least in the struggling period of last one month (as of Dec 8, 2023). This shows that these ETFs are better-positioned to fight against any challenges in the otherwise Chinese economy.
KraneShares China Internet and Covered Call Strategy ETF (KLIP - Free Report) – Up 0.7% Past Month
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (ASHS - Free Report) – Down 1% Past Month
Global X MSCI China Utilities ETF – Down 1.6% Past Month
KraneShares CSI China Internet ETF (KWEB - Free Report) – Down 1.7% Past Month
iShares MSCI China Multisector Tech ETF (TCHI - Free Report) – Down 1.7% Past Month
Global X MSCI China Communication Services ETF – Down 2.2% Past Month
KraneShares SSE Star Market 50 Index ETF (KSTR - Free Report) – Down 3.1% Past Month
Xtrackers MSCI China A Inclusion Equity ETF – Down 3.9% Past Month