Chinese stock markets fall over 1% on the first trading day of the week after the major investment bank Goldman Sachs trimmed its 2023 GDP growth forecast for China, as the world’s second-largest economy and the property market experiencing strong growth headwinds after Covid-19 reopening at end of 2022.
Hong Kong’s Hang Seng index led losses in the broader region and fell 1.15% along with the Hang Seng Tech index which fell 1.96%, while the stocks in mainland China had lower losses, with Shanghai Composite settling down 0.5% and the Shenzhen Component dropping 0.25%.
Goldman Sachs, in its latest revision, cut its forecasts for China’s 2023 GDP- Gross Domestic Product from 6% to 5.4%, noting further turbulence ahead for the economy, following the likes of other Wall Street players such as UBS, Bank of America, JPMorgan, Nomura, Standard Chartered who have all downgraded their China full-year GDP estimates due to a slew of macroeconomic issues.
The below table from https://www.cnbc.com/2023/06/19/goldman-sachs-cuts-chinas-growth-outlook.html shows the overall picture of the recent downgrades by the investment banks on their China full-year GDP estimates.
China's GDP Growth forecasts
In this context, investors have turned sellers on growth-led Chinese assets on prospects of lower economic growth in the country as the recovery from its stringent Covid-19 lockdown measures continues to disappoint through soft economic data, as well as mounting pressure on its property sector, despite the prospects for further economic stimulus and monetary easing to come.
Goldman Sachs’ economists added that there is a slew of macroeconomic issues facing the nation, including medium-term challenges such as demographics, the multi-year property downturn, local government implicit debt problems, and geopolitical tensions that may start to become more important in China’s growth outlook.
UBS also sees continued weakness in China’s economy ahead, particularly focusing on the second quarter of the year, with the growth forecasted to slow to only 1-2% quarter-on-quarter saar [seasonally adjusted annual rate], weaker than its earlier expectation of 4.5%.
Adding to the above, traders will be looking ahead to the People’s Bank of China loan prime rate decision on Tuesday with further easing expected from the central bank, after cutting some of its key lending rates last week.
The rate differential between the Federal Reserve and the People's Bank of China creates a further weakness in the Chinese Yuan against the greenback, with the USD/CNY pair climbing to the nearly 7.20 mark, its highest since December 2022.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Exclusive Capital communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.