China’s economy is collapsing;  JD, Head of BIDU China Equity

China’s economy is collapsing; JD, Head of BIDU China Equity

China’s economy is about to enter the new year as a new batch of data released on Wednesday deepens a brutal sell-off in the stock market. JD.com (JD) and Baidu ( BIDU ), was among the US-listed Chinese stocks to take a beating.

China’s GDP Slows in Q4

China’s GDP grew 5.2% in the fourth quarter from the previous quarter, coming in a touch below expectations, the National Bureau of Statistics said. For the full year, China’s GDP also grew by 5.2%, the slowest growth since 1976 – excluding Covid-2020.

The picture looks even worse when you consider two things. China’s economy grew by just 1% in the 4th quarter compared to the 3rd quarter, and decreased by 1.3% compared to the previous quarter. Until the end of 2022, China committed to a zero-Covid lockdown policy, so the jump in the first three quarters of 2023 came from very weak levels.

Second, given prices that fell 1% last year, nominal GDP growth in 2023 was just 4.2% last year, noted Deutsche Bank strategist Jim Reid.

“Nominal GDP growth is very important to many things, including debt ratios, property markets and earnings. So this will help explain the continued weakness in Chinese equities and property markets.”

China’s Population is Declining

Among other gloom: December retail sales rose 7.4% from a year ago, below forecasts for an 8% increase.

Beijing began publishing a modified measure last June after suspending its measure of youth unemployment, which reached 21.3%. December data showed 14.9% unemployment among 16- to 24-year-olds, but economists noted that this figure did not include job seekers already in school. At the same time, the broader urban unemployment rate fell from 5% to 5.1%.

The statistics agency also said China’s population fell by 2.08 million, or 0.15%, to 1.409 billion.

Chinese Stocks: BIDU, JD, BABA

Hong Kong’s Hang Seng Index fell 3.7% on Wednesday to close to a 13-year low in October 2022 amid Covid lockdowns. The Shanghai/Shenzen CSI 300 Index fell 2.2% and is now near a record low of 21.8% from a year ago. in five years.

Among Chinese stocks moving in the US stock market on Wednesday, JD.com (JD) decreased by 4.9%, Baidu (BIDU) 3%, and Ali Baba (BABA) 1.6%.

China’s economy: what it means for investors

Chinese Premier Li Qiang released the GDP data during his speech at the World Economic Forum in Davos, Switzerland on Tuesday. Qiang’s remarks were intended to underscore China’s economic strength and its ability to bounce back without major stimulus, The Wall Street Journal reported.

However, this could be taken as an indication that Beijing will avoid massive stimulus again in 2024, which is negative for stocks. Still, Chinese stocks also felt the downside from Federal Reserve Governor Christopher Waller’s speech on Tuesday, which backed a slow approach to rate cuts.

While the latest news from China is negative for the prices of commodities such as copper and oil, it is not all bad for US investors. “The US continues to import deflation from China,” strategist Ed Yarden wrote on Jan. 15. “This gives the Fed more flexibility to cut interest rates without worrying about a rebound in inflation.”

Be sure to read IBD’s The Big Picture column after each trading day to learn about the prevailing stock trend and what it means for your trading decisions.

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