Evan Brown
Head of Multi-Asset Strategy

What’s happening?

Since April, China’s reopening recovery has sputtered. The deceleration is apparent across all facets of the economy: industrial production, fixed asset investment, credit growth, consumer spending, and real estate. Due to this significant loss in momentum, the 5 percent growth target for 2023 is at risk. There is also increasing concern that this slowdown speaks to deeper structural issues in the economy that will cause a material drop-off in trend growth. Recent defaults from a major real estate developer as well as an asset manager underscore the challenges that remain in the property market despite the rollout of the 16 measures to support the sector last year.

Financial markets have reacted sharply to the disappointing trend in economic data and these high-profile corporate defaults. The MSCI China Index is down 20 percent from its post-reopening peak, and the JACI China High Yield is down 25 percent year to date. The Chinese renminbi has weakened to near its 2022 low versus the US dollar. Meanwhile, soft activity, an outright year-on-year decline in inflation for July, and monetary stimulus have fueled a 2.5 percent gain for 10-year Chinese government bond futures in 2023.

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