There have long been doubts in the official statistics released by Chinese agencies. Key towards a consideration of China’s prospects by offshore investors was “empirical” data (i.e. personally experienced fact patterns) or proxies such as ancillary actions. Key among those ancillary actions that triggered a negative outlook on the Chinese economy was the decision by the Chinese government to start debt repayment measures against borrowers of the Belt and Road Initiative (BRI) – mostly impoverished countries unable to access in-demand bonds for global investors as well as a decision to expand fiscal deficit at a time when solid growth was being reported. In 2023, the Chinese economy experienced negative foreign direct investment for the first time since the end of the Cold War and strong reported and unreported capital outflows (the fastest in seven years).

A less direct (but perhaps more relatable) “empirical” data point would be in the likes of the publicly-traded Swiss luxury goods company Compagnie Financière Richemont SA which owns brands such as Buccellati, Cartier, IWC, Piaget, Panerai, Dunhill and Van Cleef & Arpels. Early in November, the company cautioned that economic worries and global tensions were weighing on consumer spending as after the group’s first-half profits missed forecasts. This cautionary note was issued after widely-reported expectations that a post-lockdown China would see luxury goods companies witnessing a surge in revenues. Richemont was purported to be a net beneficiary, given how 30% of Richemont’s sales are in China. In reference to the potential impact of high-end Chinese buyers, chairman Johann Rupert said, “They’re not going out to bust their credit cards”.

All in all, it’s a time for caution when it comes to China. As asset mixes shift away from the “Middle Kingdom”, U.S. equities in particular might be assumed to witness some spikes. However, a resilient fixed income market with particularly favourable rates is empirically seen to be to the detriment of most mid- and small-cap companies’ valuation. Like most of 2023, it can be assumed that such spikes will likely have very little breadth since they will favour the likes of the Magnificent Seven and certain consumer discretionary companies (as an earlier article about S&P 500 trends indicated).