China - the new problem child?

After the end of the rigid anti-covid measures, it briefly looked as if China would regain its old economic strength. This was not the case. This is also reflected in the below-average development of the Chinese stock market. What are the reasons for this disappointment?

Since joining the World Trade Organisation (WTO) in 2001, China has experienced an impressive rise in the global economy. With unprecedented development in both volume and global economic importance, the economic sectors covered and the quality of its products, the country has had a profound impact on the world economy.

After a phase of steady globalisation of trade relations, a turnaround became apparent in the late 2010s, reinforced by the slogan "America first" under the presidency of Donald Trump. This trend towards de-globalisation has intensified further, especially since the outbreak of the Corona pandemic. Supply chain problems felt by the entire world led to a rethink by many countries. The idea of onshoring, for example shifting production capacities back to the domestic market, was increasingly discussed in order to reduce dependence on China as the main supplier.

Furthermore, the geopolitical stage is marked by increasing tensions between China and various regions of the world. These tensions range from the Taiwan conflict to allegations of human rights violations in Xinjiang province. Considering Russia's aggression against Ukraine, there is also speculation about possible Chinese support for Russia.

At the national level, China has been struggling for some time with an inflated real estate market, which is burdened with a crisis due to payment problems of individual important companies. Economic indicators such as rising youth unemployment of over 20% or slowing industrial production growth rates raise questions. Above all, the moderate domestic consumption has led to the expected upswing of the Chinese economy after the almost complete termination of the Covid measures in spring, disappointing analysts' expectations.

Increased government intervention in economic activity in recent years has led to our "ex-China" equity allocation at Kathrein since spring last year. A look at the performance of a global stock index compared to the Shanghai Composite Index during this period shows that this decision was the right one.

China, once hailed as an economic trailblazer, now faces challenges that need to be overcome. The coming years will show how the country deals with these changes and what role it will play in the global economy.

This information aims to provide a general overview of markets and market data as well as Kathrein's investment strategy and does not contain any direct or indirect recommendation for a specific investment strategy in the sense of a financial analysis.
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