China’s Economy Isn’t Growing Like It Used To. But Is It Time To Buy Its Stocks?

China’s Economy Isn’t Growing Like It Used To. But Is It Time To Buy Its Stocks?
Stéphane Renevier, CFA

over 1 year ago1 min

China’s economy expanded 3.9% in the third quarter, compared to a year ago – slightly better than economists had expected but still well below the country’s official 5.5% target. Under the surface, the data painted a mixed picture of the Chinese economy: industrial production was robust, but retail sales, the housing sector, and export growth continued to disappoint. Unemployment has also ticked higher.

While you should always approach Chinese economic numbers with a pinch of skepticism, Monday’s report does highlight some of the big challenges facing the world’s second-largest economy: it’s grappling with a sharp downturn in its property sector, and still reeling from strict covid measures that have paralyzed entire sectors of its economy. What’s more, the decision to staff the upper reaches of the government with some of the ruling party’s staunchest supporters only adds to fears that power is now way too centralized and increases the risks of more politically motivated but “market unfriendly” measures.

Investors generally weren’t cheered by the latest data, and sent Hong Kong’s Hang Seng index and Shanghai’s CSI 300 index sharply lower. Still, with Chinese stocks trading at 14-year lows – and close to 20-year lows relative to US stocks – this might be a time for contrarian investors to be drawn back into the market. There are clearly a lot of further downside risks from here, but the bad news might now largely be reflected in the price of stocks. And as we argued a few months ago, the longer-term opportunities are looking increasingly attractive. For investors looking to offset some of their US stocks’ risks, Chinese stocks may now provide an interesting entry point.

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