China’s slowing economy could weigh on US-listed stocks in the second half of 2023. Reuters/Kim Kyung-hoon
- US stocks have started 2023 on a high, with the benchmark S&P 500 up 14% year-to-date.
- However, given the huge business dependence of American companies on the Asian economy, China’s slowing growth poses a threat to the recovery.
- Earnings of listed US companies could fall if the world’s second largest economy continues to falter.
China’s economy is faltering – and that could be bad news for Wall Street.
From a slowdown in industrial production to falling import and export levels, investors are assessing warning signs that Beijing is struggling to reignite growth after lifting its strict zero-COVID restrictions late last year.
The People’s Bank of China has responded by cutting interest rates on hopes that lower borrowing costs will reinvigorate falling spending levels.
But even those measures failed to reassure investors as the benchmark CSI 300 stock index fell 0.2% last week after the bank cut interest rates on mortgage-linked loans.
And sluggish growth in China could soon pose a problem for US stocks, which started the year on a breakneck run.
The AI craze has sparked a massive rally for mega-cap tech stocks like Nvidia and Microsoft — with their colossal gains sending the benchmark S&P 500 up 14% year-to-date and the Nasdaq Composite up 31%.
But many of the stocks that are thriving are doing big business in China and could therefore see earnings fall if the PBoC’s recent efforts don’t spark a bounce.
Big tech giants Nvidia and Tesla both feature in a list of the 25 public companies hardest hit by the world’s second-biggest economy, according to a list released by Bank of America earlier this year.
Apple and Ford also produce large quantities of goods in China, while Nike and Starbucks derive a significant portion of their revenue from sales to the people there.
Chinese companies listed in the US are already suffering from the slowdown, with shares in e-commerce giant JD.com falling 35% year-to-date.
So far, it has been easy for investors to downplay the slowdown in China as a factor affecting stock markets as markets have boomed thanks to AI and traders’ expectations that the Federal Reserve will soon start cutting interest rates.
But with growth once again becoming the buzzword for top strategists, don’t be surprised if China’s economy soon becomes a hot topic.
Continue reading: China’s economy is far worse than anyone thought
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