Could U.S. Investors Benefit From Potential Plans in China to Stimulate the Sluggish Economy?
Key takeaways
- China’s post-Covid recovery has been sluggish, with unemployment soaring and GDP growth estimates slashed
- As a result, the Chinese government has started to introduce interest rate cuts on borrowing
- Foreign investors could catch the upside from U.S. companies in the Chinese market or via ETFs
The Chinese economy isn’t looking too hot, and the Chinese government wants to fix it fast. In a bid to boost the ailing commercial and property sectors, it’s now introducing cheaper loans, with more stimulus packages potentially on the way. But can U.S. investors benefit from the situation as it progresses? Let’s find out.
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What’s happening with China’s economy?
After China finally relaxed its pandemic lockdown restrictions, the economic recovery has taken longer than expected. China’s latest producer-price inflation was surprisingly weakening, with prices falling 4.6% in May compared to last year; unemployment has risen to a record 20.8% and exports declined for the first time in months.
Goldman Sachs economists have now slashed the country’s GDP forecast from 6% growth to 5.4%, predicting a 4.5% growth for 2024.
The Chinese government is now said to be considering a range of stimulus measures to help boost commercial activity in the country. This could include lowering interest rates, supporting China’s debt-riddled property sector and making loans cheaper, which could be an interesting windfall situation for some investors.
How could investors benefit?
We’ve already seen some boosts thanks to the Chinese government taking action. When the Chinese central bank cut the cost of borrowing last week in a bid to stimulate the economy, the two largest U.S.-listed ETFs for the Chinese market gained. The iShares MSCI China ETF and the iShares Trust-China Large-Cap ETF saw a 1.8% and 2% rise, respectively.
Today, the People’s Bank of China took things a step further by cutting the one-year loan prime rate to 3.55% from 3.65% and lowering its five-year loan prime rate to 4.2% from 4.3%. But the markets weren’t impressed as they waited for bigger moves from the Chinese government: the Hang Seng Index dropped by 1.54% and the Shanghai Composite declined by 0.47%.
U.S. investors might benefit indirectly from U.S. companies with a presence in China. Some of the most recognizable brands like Tesla, Apple and Starbucks are in the country; any stimulus packages could potentially boost their sales and stock price in turn.
The bottom line
China’s struggling economy is something the government hasn’t had to reckon with for a long time, so it’s only natural that it wants to fix the situation as quickly as possible. With indirect exposure from U.S. companies in the Chinese market and ETFs, traders can now take advantage of the opportunities.
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