Chinese investors will ask three questions in 2024:

Here’s what investors are watching for the year ahead.

Despite all the geopolitical risks, China’s appeal as a fast-growing market is waning as its economy matures.

Many were disappointed that China’s economy did not recover as quickly as expected after COVID-19 restrictions ended in December 2022. Growth remained slow for most of 2023, with the exception of certain sectors such as tourism and electric vehicles. Real estate troubles and export slump.

Multiple international investment banks changed their growth forecasts for China multiple times last year. After ups and downs, economic growth is widely expected to be around 5%.

“Policy action is essential to solidify the recovery momentum,” Citi analysts said in a Jan. 3 note.

They expect the People’s Bank of China could cut interest rates, including the reserve requirement ratio (the amount of funds lenders must hold in reserve), as early as January. They also predict that overall GDP could grow by 4.6% this year.

The Chinese government has announced a number of policies to provide phased support. However, it took time for clear effects to appear.

“Stimulating assets, a clear exit from deflation, and improved policy implementation and communication are all needed to restore confidence, stimulus is essential and good reform is welcome,” Citi analysts said. I’m thinking about it.” “The risk is that the market may not have enough patience for reform.”

In mid-December, top Chinese officials held an annual meeting to discuss economic policy for the year ahead. Official announcements have not indicated any significant economic stimulus measures, but technological innovation has been cited as an initial area of ​​focus.

Among the upcoming major government meetings, the Chinese government is expected to announce detailed economic targets at a parliamentary meeting in early March.

“For those who are already in this situation, [invested] In China, we’ve been fixated on 2023, and we believe the trigger will come,” Jason Su, chairman and chief investment officer of Rayliant Global Advisors, said in late November.

“They don’t really focus on the fundamentals of the companies in the market,” he said. “They’re purely betting on monetary and fiscal policy to keep the economy and the stock market afloat.”

However, it remains to be seen whether China will accelerate growth as before.

“My framework is that China is not going to do any significant economic stimulus,” Ren Lijian, head of quantitative investing at WisdomTree, said in late November.

“Even if China were to meet, even if they proposed a good package, I think a lot of these stimulus packages would be constrained by this framework to try to improve China’s growth,” he said. , referred to the Chinese government’s efforts to promote “high growth.” We aim for growth that emphasizes “quality” rather than debt-driven growth.

Real estate is a clear example of a debt-driven sector, accounting for about a quarter of China’s economy.

The real estate market slumped in 2020 after the Chinese government cracked down on developers’ heavy reliance on debt for growth. The close relationship between the real estate industry and local government finances, construction supply chains, and household mortgage loans has raised concerns about the spillover into the broader economy.

“China’s real estate downturn is the biggest drag on China’s economy since the lifting of zero-coronavirus restrictions in late 2022,” Goldman Sachs analysts said in a January 2 note. ” he said. “Real estate sales and construction starts fell significantly from 2021 to 2022, with net declines continuing in 2023.”

“However, the pace of demand decline is slowing and we expect some stabilization in 2024,” the analysts said.

Commercial residential sales in 2023 were down 5.2% year-on-year as of November, according to data from the Office for National Statistics, which can be accessed via Wind Information. This comes after those sales declined by 26.7% in 2022.

Ding Wenjie, investment strategist for global capital investment at China Asset Management, said the real estate situation is “gradually stabilizing, but it is hard to see a turning point,” according to a translation of his remarks in Mandarin by CNBC. .

He expects policy support to increase in 2024 as authorities shift their focus from focusing on risk prevention to pursuing progress while maintaining stability. Ding was referring to the new official language that appeared in a reading at a high-level government meeting in December.

It is clear that the Chinese government wants to reduce the real estate sector’s contribution to China’s gross domestic product (GDP), but it is uncertain whether new growth drivers can fill the gap.

Machinery, electronics, transportation equipment and batteries together contributed 17.2% of China’s economy in 2020, according to Citi analysts.

That means these manufacturing sectors could offset the impact of real estate, analysts said. However, they noted that the economic transition will not happen overnight, as skills mismatches in the labor market will need to be addressed and supply chains built to support real estate development will need to be adjusted.

“If technology sanctions become a binding constraint for new drivers, the potential to make up the shortfall from wealth will not materialize,” the report said.

Despite macro challenges, the Chinese government has expressed a desire to strengthen domestic technology and advanced manufacturing.

China AMC’s Ding said the high-end manufacturing subsector could benefit this year due to an upturn in the global technology cycle. Examples include those related to household appliances and computers.

He also expects producer prices to return to higher levels by the end of the second quarter, boosting Chinese companies’ earnings per share by about 8-10%. Another area of ​​focus for her team is Chinese companies that are growing their global revenues.