China Stimulus
The global green energy rush faces mounting headwinds. Additional global solar and wind capacity installations will have considerable growth reduction this year. Copper prices did not drop much in 2023 due to surging demand from green power build-up. Green power will be less positive for copper demand in 2024 than in 2023. We expect more downside in global renewable energy stocks.
The combined US credit impulse and fiscal thrust indicator will likely relapse in 2024, heralding growth weakness. Stalling US sales volume and falling inflation, combined with sticky labor costs, will herald a non-trivial profit margin compression. The recent increase in Asian exports will likely prove to be a mid-cycle improvement rather than a cyclical recovery.
A low multiplier effect of stimulus will reduce the magnitude of the rebound in China's business activities in 2024. The housing market downturn will likely persist, and the ongoing household deleveraging also poses a significant challenge to China’s economic recovery.
The statement from last week’s Central Economic Work Conference indicates that Chinese authorities are still not considering large-scale stimulus in 2024. Odds are that a full-fledged business cycle recovery in 2024 is unlikely. Chinese share prices remain vulnerable, and strengthening in the RMB will be short-lived.
Explore the eight main themes that will drive the returns of European assets in 2024.
The major question facing EM investors in 2024 is whether or not EM will cross the Rubicon. The path to a soft landing in the US remains elusive. The recent improvement in global manufacturing/trade will likely prove to be a mid-cycle bounce rather than the beginning of a cyclical recovery.
Nominal household spending growth in China will slow in 2024. Strong headwinds will arise from a slower household income expansion, falling house prices, a downbeat employment outlook, and shrinking exports. Spending on healthcare services will post solid gains but durable goods consumption will experience anemic growth in 2024. We favor consumer staples and healthcare stocks versus the domestic benchmark.
Democrats are favored to win the election until recession materializes. But recession risks are high. Investors should adopt a defensive and conservative strategy in 2024 amid extreme US policy uncertainty.
The overarching macro theme for China in 2024 will be deflation and its impact on the economy, macro policies, and financial markets. Widespread deflation, in combination with high debt levels and falling real estate prices, has unleashed debt deflation and balance sheet recession dynamics. The latter are rendering monetary policy inefficient.
A cyclical recovery in China’s economy is still not imminent. The PBoC has tightened interbank liquidity to stabilize the exchange rate since late August. This does not bode well for the real economy. The uptick in onshore bond yields and the RMB’s appreciation will be transient. Equity investors should stay cautious.