Macroscope | Why China’s economic downturn warrants more than a shrug from global investors

Name: Chinese manufacturing thrown into disarray as country's electricity crisis rolls on
Uploaded: 2021-10-28T06:30:24.000Z
Duration: 4 min 1 s
Description: Chinese manufacturing thrown into disarray as country's electricity crisis rolls on

Investors may claim they are increasingly concerned about China, but important measures of sentiment suggest otherwise

The failure to reckon with a much sharper than expected slowdown in China is a grave mispricing of risk at a time when global growth is slowing sharply and central banks are preparing to tighten monetary policy

Reading Time:3 minutes

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A worker makes carpets for export at a factory in Binzhou, in China’s eastern Shandong province, on October 20. A steep deceleration in Chinese growth would be a shock to a world accustomed to annual rates in excess of 7 per cent for most of the past 20 years. Photo: AFP

Nicholas Spiro

Published: 2:30pm, 28 Oct 2021

Are Chinese risks being assessed and priced accurately? It is a question that has been posed many times as China’s integration into the global economy has deepened over the past two decades.

It is also a major theme that applies to several countries and sectors, and which has become more of a concern since global asset prices became heavily distorted by central banks’ ultra-loose monetary policies.

Since the Covid-19 pandemic erupted, China has been a game of two halves. Last year, it was all about the country’s swift and vigorous recovery, underpinned by Beijing’s successful containment of the virus.

Indeed, one of the reasons many investors initially favoured China was that it was stimulus-shy, allowing it to focus on maintaining financial stability. This benefited the yuan, helping fuel foreign inflows into China’s bond market.

This year, however, China has become a major source of anxiety. The combination of a strong vaccine-driven reopening of the American and European economies, Beijing’s severe regulatory clampdown on the private sector and a much sharper than anticipated slowdown in China has caused a significant deterioration in sentiment towards the world’s second-largest economy.

04:01

Chinese manufacturing thrown into disarray as country's electricity crisis rolls on

In a sign of the degree to which China is perceived much more negatively by international investors, it is now the second-most important “tail risk” in markets after inflation, according to the findings of the latest Bank of America fund manager survey published on October 19.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Why China’s economic downturn warrants more than a shrug from global investors

Macroscope | Why China’s economic downturn warrants more than a shrug from global investors