For investors, pinning hopes on a resurgence in Chinese demand to offset economic weakness elsewhere is misplaced. David Rosenberg explains.
While the end of China’s lockdowns will further ease supply chains and add to worldwide disinflationary pressures, related growth benefits are unlikely to be enough to prevent a global downturn in 2023. That’s a warning to investors not to get complacent amid talk in the media of a soft landing for major economies, and to take a defensive posture by steering clear of cyclical stocks while adding high-quality bonds to the portfolio.
It’s unclear what fatality rate Beijing would be willing to tolerate, but one should never underestimate the government’s resolve to bring back lockdowns if deemed necessary. It’s true that thanks to relatively low inflation, the People’s Bank of China has room to stimulate demand. But despite a string of accommodative policy measures this year, the uptake of credit has been rather modest. Household loans have risen by 3.65 trillion yuan in the first 11 months of 2022, just half of the tally registered for the same period in 2020 and 2021.
The good news is that the yuan’s competitiveness has significantly improved this year, with the real effective exchange rate dropping to its lowest level in almost three years thanks to nominal depreciation and lower inflation rates than China’s trade partners. The bad news is that exports are vulnerable to a global economic downturn, which is becoming more likely after unprecedented policy tightening by world central banks.
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David Rosenberg: The great reopening of China may not be as great as you thinkFor investors, pinning hopes on a resurgence in Chinese demand to offset economic weakness elsewhere is misplaced. David Rosenberg explains.
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David Rosenberg: The great reopening of China may not be as great as you thinkFor investors, pinning hopes on a resurgence in Chinese demand to offset economic weakness elsewhere is misplaced. David Rosenberg explains.
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David Rosenberg: The great reopening of China may not be as great as you thinkFor investors, pinning hopes on a resurgence in Chinese demand to offset economic weakness elsewhere is misplaced. David Rosenberg explains.
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