There was one conspicuous no-show at this year’s global stock market party: China.
While 2023 has been the best year for global stocks since before the pandemic, with markets in the United States, Europe, Japan and India enjoying strong rallies, investors have soured on China. A string of problems — including a real estate crisis, weak consumer spending and high youth unemployment — have put the world’s second biggest economy on the back foot.
China’s blue-chip CSI 300 index fell more than 11% this year, while Hong Kong’s Hang Seng is down almost 14%. Meanwhile, the MSCI World index is on track to close the year 22% higher, its biggest annual jump since 2019.
The US benchmark S&P 500 index, and Europe’s Stoxx 600, are on course to finish the year up almost 25% and 13% respectively. Japan’s Nikkei 225 has soared 30% since the start of the year. India’s benchmark Sensex, which tracks 30 large companies, has climbed nearly 19% this year.
Stocks have bounced back thanks to falling inflation, raising investors’ hopes that the world’s central banks will soon cut interest rates, as well as excitement around the potential for artificial intelligence to make big returns for companies.
India has gained from bullish bets on its economy, while Japanese stocks have benefited partly from relatively cheap valuations and a weakening currency.
Yet, despite abandoning its policy of strict coronavirus lockdowns in late 2022, China’s economy has not posted the strong rebound that many investors were hoping for.
Among a long list of challenges, sluggish demand has kept a lid on consumer prices for most of 2023, and there is a risk of a deflationary spiral. Foreign companies have also grown wary of Beijing’s rising scrutiny and are leaving the country.
The longer-term outlook isn’t rosy either.
In November, the International Monetary Fund (IMF) said it expected China’s growth rate to reach 5.4% in 2023, and gradually decline to 3.5% in 2028 as its economy grapples with problems ranging from weak productivity to an ageing population.
“The 2024 challenge for the Chinese economy will not be GDP growth — that will likely be above 4.5%,” said Derek Scissors, senior fellow at the American Enterprise Institute, a center-right think tank, told CNN this month. “The challenge will be that the only direction from there is down.”
A struggling Chinese economy has helped drive steep declines in oil prices this year.
Brent, the global oil benchmark, is on track to decline almost 9% this year to trade at about $78 a barrel, while West Texas Intermediate crude, the US benchmark, is heading for a loss of more than 10% to around $72 a barrel.
As the world’s largest oil importer — 71% of the oil it consumes comes from foreign countries — signs of weakening demand in China have triggered sell-offs by investors. Record levels of oil production in the United States this year have also played a major role in driving those price declines.
The US Energy Information Administration expects crude oil output to have reached an all-time high of 12.9 million barrels a day on average this year, and to hit another record average of 13.1 million barrels a day in 2024.
Earlier this month, Goldman Sachs cut its forecast for the average oil price next year by 12%, citing abundant US production.
Prices have fallen despite the Organization of the Petroleum Exporting Countries and its allies — a group of the world’s major oil producers known as OPEC+ — saying they will extend a supply cut of 2.2 million barrels per day through the first quarter of next year in an effort to buoy prices.
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