In mid-July 2024, China’s economy grew by 4.7% in the second quarter, marking the slowest growth rate since the first quarter of 2023. The troubled real estate industry continues to show no signs of improvement, further weighing down the economy. For global investors investing in the Chinese stock market, the latest economic data only deepens their frustration.
According to the data released by the National Bureau of Statistics of China on Monday, July 15th, the country’s economy slowed down in the second quarter, with the ongoing slump in the real estate market and unstable employment conditions putting pressure on domestic demand.
During the first half of this year, real estate development investment declined by 10.1%, with national sales area and sales volume of new commercial housing dropping by 19.0% and 25.0% respectively year-on-year.
The GDP growth in the second quarter was 4.7%, lower than the analyst forecast of 5.1% by Reuters. This indicates that the series of measures implemented by the government to boost consumer confidence in China have had little effect.
Reuters noted that this context sends a signal to investors that in order for China to achieve any meaningful recovery and boost a stock market that has only seen a marginal 1% increase this year, a long wait is still required. Most investors are currently in a wait-and-see mode, while those who have already invested in the Chinese stock market are testing their patience.
Philip Wool, Senior Managing Director at RGA, mentioned in a report that being a Chinese investor now is “frustrating.” RGA has selectively purchased some Chinese stocks, likening it to value investing strategy of selecting low-priced stocks with high profit potential. Wool believes that prices will eventually rise but is uncertain about the timing.
Wool expressed the challenges of being a contrarian investor, enduring all the negative emotions and witnessing a “false start” to recovery that is painful and stressful.
Earlier this year, the Chinese government took a series of support measures to bolster the sluggish stock market, leading to a brief rebound. However, several months have passed, and the instability of China’s economic recovery and the lingering real estate crisis remain unresolved, with many real estate developers still at risk of liquidation. Additionally, escalating tensions in China-EU trade and U.S.-China relations pose further geopolitical challenges to China’s economic recovery.
Michael Dyer, Director of Multi-Asset Investments at M&G Investments, was quoted by Reuters as saying, “The problem with China is that it is a years-long healing process.”
Shane Oliver, Chief Economist for AMP in Sydney, commented on the economic data released by China on Monday, stating that the GDP data aligns with what they have seen from some economic indicators, indicating further slowdown in China’s growth. The main issue lies in consumer spending, suggesting that China’s GDP growth for this year faces downside risks and may highlight the need for more stimulus policies.
Following the disappointing data announcement on Monday, the Hong Kong Chinese stock market extended its decline, with the Hang Seng China Enterprises Index closing down by 1.7%.
Raymond Yeung, Chief Economist for Greater China at ANZ Banking Group, highlighted the weak retail sales as the most prominent among all the monthly data released, indicating that household consumption remains very weak. The “cash for clunkers” program failed to boost consumption. With employers cutting wages and youth unemployment rates remaining high, households are expected to continue to be cautious in the future.
Currently, logistics warehouses and industrial parks that once attracted international investors are facing increased vacancies and sluggish activities, further signaling the weakness in China’s economy.
A June 25th report by Bloomberg noted that there is a decreasing number of tenants in logistics centers, forcing landlords to reduce rents and shorten lease terms. Real estate investment trusts with commercial properties in China saw a steep drop in stock prices, with some fund managers expecting further declines in rental income.
Real estate consulting firms stated that the average vacancy rate for logistics real estate in East and North China is close to 20%, the highest level in years. The ongoing construction of more warehouses exacerbates the problem. Xavier Lee, a real estate stock analyst at Morningstar, pointed out, “We are facing an oversupply issue in China’s logistics and industrial real estate sector.”