Published on September 22nd, 2023 | by Sounder Rajen

China’s Economy Slowing, Is The Rest Of The World Slowing Too?

With China’s economy going down many international stocks are also dropping

Are we too dependent on China financially? This is a hard question to ask and sadly, many countries need to ask this question as recent events have shown us that many countries and companies may have put all their eggs in one basket, so what happens when that basket falls apart?

China’s worsening economic sentiment and falling property values are increasingly expected to hit spending on big-ticket items as well and now, Qualcomm shares fell 12 percent, with demand for smartphones expected to decline. I mean with most smartphones being USD1,00 (about RM4,000) and up, is anyone surprised?

Moreover, as a direct result of China’s economy dwindling, shares of BMW, which relies on China for around 30 percent of its sales, dropped 13 percent from the end of July to Tuesday. Tesla, which relies on China for over 20 percent, was also down 4 percent. Yea, things are looking pretty gloomy then.

The impact of this is now spreading to luxury brands with a lower percentage of sales in mainland China but that nevertheless depend heavily on affluent Chinese customers, including when they travel abroad. LVMH Moet Hennessy Louis Vuitton fell 10 percent too. When the wealthy are in trouble, you know it’s bad.

There is concern that the slump could spread even to companies with limited exposure to China if businesses there ramp up cheap exports to make up for sluggish demand in the country.

Koji Toda, senior fund manager at Resona Asset Management, said, “A wide range of manufacturers could be impacted if China falls into a supply glut and starts exporting deflation.”

On top of that, Steel is a key example. While players like Nippon Steel have logged strong performance recently, overproduction in China could send steel prices plummeting. “We are adjusting our position under the assumption that profits in the steel industry could halve suddenly in the future.” said a senior investment manager at Sompo Asset management.

Chery Omoda 5 Crossover ICE SUV — Chery Omoda 5 Chinese Crossover

As China’s property slump stokes concerns over a slowdown in the world’s second-largest economy, investors are shying away from global stocks with significant exposure to the Chinese market in a wide range of fields, from manufacturing to retail. So we really need to ask now, how much trouble is the whole world in?

The MSCI World Index, which tracks stock prices in advanced economies, closed at 2,336.36 in local currency terms on Tuesday. It has recovered to just 2 percent below its July-end figure after the Chinese government on 27 August 2023 announced new measures to lift stock prices. Let’s hope it works.