Can China rebound in 2024?

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Ethan Wu (0:34)

Pushkin, 2023 was a pretty good year for most global stock markets, but there was a big glaring exception, and that was China, which was down more than 10% in the year. And it's not had a particularly good start to 2024 either. Today on the show, why China is stumbling once again.

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu here in New York, joined from London by markets columnist Katie Martin.

Katie Martin (1:08)

Hey man, how are you going?

Ethan Wu (1:09)

Not bad at all. You know, now that you are in your columnist role, you can think big thoughts about the world. And I think you need especially big thoughts to think about China, just because it's such a different system. The market works so differently, the economy works so differently, the policy responses work so differently.

So we're going to try to think some, let's call it medium sized thoughts today about what's going on in that country and what global investors should take away from it.

Katie Martin (1:32)

We can achieve that. Medium sized thoughts, we are on it.

Ethan Wu (1:36)

That's our highest aspiration here on the Unhedged podcast.

So I mean, maybe just to set the stage, Katie, I remember writing a whole bunch in the first few months of 2023 about the big China reopening boom trade. Goldman Sachs is into it, Bank of America is into it, all the Wall Street sell side people are into it. And they're like, well, zero COVID has ended China's reopening. There's going to be revenge spending. There's all this pent up demand, there's savings, the trillions of yuan of savings.

And there's going to be a huge economic boom, a huge stock market rally, get in now. And it didn't happen.

Katie Martin (2:10)

It so did not happen. It was a massive disappointment for a lot of different investors out there. So if you remember, it's a little bit difficult to remember because everyone's timeframes get like pushed out of whack by COVID and lockdowns.

But China was in lockdown much, much, much longer than most other major economies. And yes, so as you say, there was this big idea that once they come out of zero COVID lockdowns, consumers are going to kind of revenge spend, as you say, and just splash the cash. They did not do this at all. And in addition, you've got this whole like rewiring of kind of global trade in the sense that a lot of companies globally are thinking, OK, we got our fingers burnt last time by having all of our manufacturing in China. Let's spread it around the world a little bit. Let's put some in some kind of friendly countries around the world, not rely so heavily just on China.

And so for a whole bunch of reasons like that sort of near-shoring, friend-shoring thing, and like that disappointment from the Chinese consumer that just meant that the China trade did not work last year at all, the really sad news is it's not working this year either.

Ethan Wu (3:16)

Yeah.

Katie Martin (3:16)

And it sticks out like such a sore thumb. Right. So the CSI 300 index is down 5% already this year. Like, you know, last time I checked, we're still in January. This is such a long month. It's driving me bonkers. Like I'm doing dry January and it's killing me.

Oh no.

First day of the day, boys and girls. So yeah, CSI is down 5%, the Hang Seng in Hong Kong is down 8%, the Shenzhen Composite is down 12%. These are not good numbers.

Meanwhile, you look at Japan, for example, it's up 7% in yen terms, and that's still 2 or 3 in dollar terms. That's pretty good. The S&P 500 is just like skittling records, left, right and center is up like 3% so far this year. Yes, there is a whole thing around, oh, it's just a couple of stocks doing the hard work, and that matters, but it kind of doesn't matter in this context in the sense that it's just that China is really out on its own here. Stocks are doing horribly.

Ethan Wu (4:18)

Yeah, there have been periods of Chinese stock market slumps before that tend to track general weakness in the economy. I mean, I think the one that's been coming up in some of my reading is in 2015, right? There was a big surge of Chinese retail investor interest in what people called the Uncle Xi bull market.