Global X China Innovation ETF (KEJI)

China's near-term challenges and long-term uncertainties are plentiful, but the widespread pessimism towards the Chinese economy and markets feels excessive.

The PBOC held the 1-year medium-term lending facility (MLF) rate at 2.5% in March. The PBOC remains on a dovish tilt, but depreciation pressure on the RMB limits room for monetary easing in China before global central banks start to cut rates.

China and Hong Kong markets had a humbling 2023 with equities down more than 10%. Beijing has also begun stepping up tourism and travel promotions, granting visa-free entry to 11 countries, with Singapore and Thailand the latest to be included.

Why China May Need To Do More To Boost Investor Confidence

The Chinese economy is stabilising, but the only fireworks will come from the new year celebrations, which begin on February 11, as momentum remains weak. China's GDP growth for the fourth quarter rose from 4.9% year-on-year to 5.2%, bringing 2023 full-year growth to 5.2% YoY, exceeding the 5% growth target set at last year's Two Sessions.

While recent policy announcements and data surprises have generated some optimism, we maintain a cautious stance on China's economic prospects. We believe weak consumption trends, a downbeat labor market and continuing property sector headwinds should all weigh on the economy in the coming quarters.

In response to the recent China equity market rout, policymakers vowed last week to stabilize the market through more forceful measures. Despite a very positive initial market reaction (an 8% rebound in three days), deeper fundamental issues such as deflationary risks and lack of demand remain key concerns for China's economy.

China's government is finally moving to stimulate the economy after its sluggish post-COVID reopening.

Chinese stock prices have lost money in the 16 years since 2007 and are now back near 2005 levels. Chinese treasury bonds have rallied sharply as beaten-up capital capitulates out of riskier markets and back to the relative safety of government bonds.

India's potential for economic growth lies in its young population, business-friendly reforms, and technology sectors. To unlock this potential, India needs long-term policies to address structural constraints and short-term infrastructure investments.

Mainland Chinese economy shows signs of regaining growth momentum in November, with higher output, new orders, and improved business conditions. Business expectations remain below average, leading to job cuts for the third consecutive month.

The ETF industry made a strong showing during the past week, with 16 new funds making their debuts and several funds closing. Gotham, Qraft, the Bahnsen Group, Simplify, First Trust, Global X, Avantis and Janus Henderson all rolled out new ETFs.

PMI data for October showed momentum in China's economy waned following recent improvements in hard activity data. By industry type, most manufacturing sectors experienced a slowdown in growth in October, though for companies that are heavy consumers of energy, activity actually declined slightly, perhaps affected by recent increases in the prices of crude energy.

The IMF, the World Bank, and the United Nations all rank China and Japan as the second and third largest economies on the planet. More of what is occurring in the markets should reflect what is happening in China and Japan which are strongly linked economically.

While China's economy is still struggling, it is at least not getting incrementally worse and there are some pockets of improvement. Exports continue to decline in year-on-year terms, but the rates of decline are decreasing.

While slower growth in China will impact the global economy and financial markets, we think the short-term pain is necessary to avoid bigger problems down the road. China's economy is in the early stages of a long-term transition away from an export-driven, investment-led model toward a more balanced one with more domestic consumption.