For a long time, China has been a source of optimism in the stock market, and now it is becoming a reason for concern.
For investors investing in heavyweight US stocks such as Apple (AAPL) and Nvidia (NVDA), this country suddenly looks less promising.
U. Rob Haworth, Senior Investment Strategy Director at S. Bank Wealth Management, said, "The reopening of the economy has disappointed people greatly." Haworth said, "Apart from domestic tourism, there has not been much pent up demand released
According to Reinitiv Lipper, investors have withdrawn $1.6 billion from mutual funds and exchange traded funds focused on China in 2023. Due to capital outflows and weak performance, the total net asset value of these funds was $21.6 billion, a one-third decrease from their peak in 2021.
Behind the sluggish economic growth in China is the sluggish real estate market and the increasing possibility of a default by a large Chinese developer. Recent data also shows that China's manufacturing activity shrank in October.
In this context, investors cannot help but ask whether consumers will prioritize debt repayment rather than new consumption, thereby prolonging the period of economic weakness.
If your business relies on selling to Chinese consumers, then we know there are downside factors, "said Scott Ladner, Chief Investment Officer of Horizon Investments
US listed companies with significant business operations in China are facing difficulties. The Nasdaq Golden Dragon China Index tracks 79 consumer companies, including Alibaba. The index rose significantly in early 2023, but has fallen 4.5% so far this year. Meanwhile, the Nasdaq Composite Index rose by 30% in 2023.
Yum China, which operates KFC and Pizzahut restaurants in China, fell 15% in New York trading last Wednesday after executives said consumer demand weakened in September and October. Estee Lauder's stock also fell after the cosmetics company warned that the sales recovery of high-end beauty products in the Chinese market was slow.
Apple reported that revenue from the Chinese market decreased by 2.5% to $15.1 billion in the three months ended September.
Enterprises are also facing more government pressure. In China, government officials have recently been banned from using iPhones at work. According to The Wall Street Journal last week, new export control measures in the United States may force chip manufacturer Nvidia to cancel billions of dollars worth of Chinese orders.
Since the beginning of this year, Nvidia's stock price has tripled, while Apple's stock price has risen by 40%.
Some investors have expressed that Chinese policymakers may adopt a new round of economic stimulus measures, which may lead to a significant rebound in stocks with a focus on China. But they have doubts about whether this measure can bring lasting improvements.
Tony Roth, Chief Investment Officer of Wilmington Trust, said, "In this situation, you are just releasing future economic growth ahead of schedule