From hope to hesitancy and now total capitulation, global investors in China are heading for the exits in the world’s second-biggest economy and sending its stock market crashing.
Stock markets in Hong Kong and Shanghai tumbled on Monday — the Shanghai index marking its worst day since April 2022 — as investors retreated from what was a ‘must have’ country in global portfolios just a year ago.
The selling seemed to subside on Tuesday as Chinese Premier Li Qiang chaired a cabinet meeting and Bloomberg News reported authorities were considering a package of measures to stabilize the market.
“There is a degree of capitulation,” said Derrick Irwin, an emerging markets portfolio manager at Allspring Global Investments. “Until there is a bigger crisis, the Chinese government may just continue to kind of throw cups of water on the fire, instead of something big that they probably need to do.”
Allspring has been underweight China since last year.
This week’s selloff was a culmination of months of frustration over the direction of the economy, particularly the often-opaque regulatory changes that thwarted China’s post-pandemic recovery last year.
China’s benchmark CSI 300 Index has slumped 47% since it peaked in February 2021, while the Hong Kong HSI stock index has sunk 49%. In contrast, Japan’s Nikkei Average and the U.S. benchmark S&P 500 are up 24% each.
The Shanghai and Shenzhen exchanges have wiped out $3 trillion of value since the end of 2021.
BIG MEASURES NEEDED
Analysts at Goldman Sachs noted much of the negativity around China was priced into the stock market. But a turnaround will take time and require big policy measures, including forceful and comprehensive easing, stimulus, better Sino-U.S. relations and even government backstops in the housing and stock markets, they wrote.
Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, plans to scale down his already underweight position on China due to a loss of confidence in the country’s economic activity and regulation.
“In general, our emerging markets managers are underweight China, and we are increasingly picking and working with managers that have greater underweights to China,” he said.
Any hopes that 2024 will be different were nipped early by hints from authorities that they will overlook short term hiccups as they pursue healthier, long-term growth.
Support for the battered property sector that underpins much of the economy has also been fitful, even as the Communist Party has vowed to boost oversight of the country’s $61 trillion finance industry and local governments.
Marko Papic, chief strategist at the Clocktower Group, said a heavy-handed regulation of the finance sector is not what China needs now.
“After a crisis, you need banks to have animal spirits and to feel like they should lend, so if you crack down on them, it’s going to slow down the recovery.”
An eagerly anticipated policy rate cut this month didn’t come through, either, which Papic said showed “we’re really far from any sort of a bazooka … they’re not even willing to fire a water pistol.”
A ‘MICRO’ STORY
While investors have flocked to India, Japan and other emerging markets, some overseas money still remains in China, belonging to pension funds and others whose products are indexed to MSCI’s emerging market index, of which China comprises more than 26%.
Estimates from the Institute of International Finance show a $82.2-billion outflow from China portfolios in 2023, while emerging markets excluding China saw $261.1 billion in non-resident portfolio inflows.
Dozens of exchange-traded funds also hold the country’s equities.
Yet, the compulsion to own a piece of the nearly $18 trillion economy has given way to discretion, says Norman Villamin, group chief strategist at UBP, which lowered China to underweight and raised India to overweight in October.
“Over the last 30 years, the story of China has been China is growing fast, China is becoming the manufacturing center of the world. So you should just own China because the economy is doing very well,” Villamin said.
Now, it is less of a ‘macro story’ and more a ‘micro story’ about owning a few good companies there, he said.
BAND-AID
Mainland investors are meanwhile unenthused by the Bloomberg News report that policymakers may mobilize about 2 trillion yuan ($278.98 billion) for a stocks stabilization fund. The Shanghai index closed below the psychologically key 2,800-point mark on Tuesday.
“It’s like crying wolf,” said Simon Yu, vice general manager at Panyao Asset Management. “Talks about the rescue fund have been swirling for a long time, but haven’t yet materialized.”
Local analysts have been calling for the set up of a rescue fund since last year.
There’s precedence. A “National Team” was set up during the 2015 stock market crash, comprising a group of investors that included state fund Central Huijin, China Securities Finance Corp and investment vehicles under China’s forex regulator. Their buying lifted the stock market, but just briefly.
Yu said market confidence could return if the government made it clear that it would buy stocks worth several hundred billion yuan every year.
“If there’s nothing concrete, only vague rhetoric, investors expectations will remain pessimistic.”
Singapore-based Daniel Tan, a portfolio manager at Grasshopper Asset Management, said the proposed amount for the fund is small “compared to the size of the problem” but could signal a change in authorities’ strategy.
“We will adopt a wait-and-see approach for now. There is plenty of upside if and when the market starts to rally, we are not motivated to pick the bottom.”
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
