Market Round-Up

China’s year-on-year growth in gross domestic product (GDP) reached 4.9% in the third quarter of 2023, exceeding the consensus rate of 4.5%. Seemingly, the stabilising policies that Beijing has implemented have begun to take effect, but qualms remain over unresolved structural problems which risk causing a long-term drag on economic performance.

Domestic consumption and exports are on the up, with retail sales growing by a modest 5.5% in September compared to the same month the previous year. Similarly, September’s trade balance improved by US$9.3bn to US$77.7bn. Nonetheless, anxiety over the beleaguered property sector persists, curtailing consumer confidence and spending in turn. Moreover, net exports are down by 6.2% from last year, with current geopolitical developments not helping global demand growth, injecting further uncertainty into the market.

There are calls for more extensive stimulus as the world’s second-largest economy teeters on the edge of deflation. However, the Chinese Government seems hesitant to pursue such a policy, preferring instead to focus on stabilising over-leveraged economic sectors and channelling investment towards more advanced manufacturing, such as electric vehicle production, rather than providing households with direct handouts.Additionally, repairing private sector confidence will likely take priority, as investments in that field were down 0.6% by the end of September, with ideas like a stock stabilisation fund being considered. It will be interesting to see which path the Chinese Communist Party takes as it attempts to reach its 5% annual GDP growth target.

Elsewhere, October has seen the UK grapple with similar confidence drawbacks with the GfK Consumer Confidence Index recorded the steepest month-on-month drop since March 2020. The index measures consumer economic prospects across 2,000 households on a monthly basis, with values above 100 suggesting a boost to consumer confidence, while scores below 100 imply a more pessimistic outlook.

October’s findings recorded a result of -30, a nine-point fall from September. The sharp decline wiped out incremental gains made over the past five months with the October figure back on par with the readings from April 2023. The sudden trajectory reversal has likely been induced by rising expenses going into the Autumn season, as households contend with accelerating fuel and heating costs. In addition, more mortgage holders have to confront the added financial burden brought about by historically high interest rates as they roll-off existing fixed mortgage deals, with renters also struggling as rents increased by 12% in the year leading up to August.

Such news will concern industry leaders, especially retailers, in the run-up to Christmas as there will be fears that customers hold back on spending in an uncertain economic climate. Already, retail sales have declined by 0.9% in September, exceeding expectations of a 0.3% contraction. Generally, however, UK consumer spending has tended to be more resilient than expected, although it is improbable that sentiment will improve anytime soon as stubborn inflation grants the Bank of England little room to ease interest rates in the near-term.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance.