The US economy shows more signs of slowing in the fight against inflation. With US economic growth moderating, investors may want to look at opportunities abroad. In China, stocks have rebounded from double-digit losses, as investors embrace a growth recovery following its fast re-opening.
This article was written with contributions from Mariola Tyranska. Mariola is a Research Analyst on the SPDR Americas Research Team.
Equities rose broadly last week, with US equities gaining 2.5%, continuing an upward trend so far this year.
US GDP rose at a 2.9% annualized pace in the last quarter of 2022.1 While it beat the 2.6% estimate, it’s still down from 3.2% in Q3 2022. The US Personal Consumption Expenditures (PCE) Price Index rose just 5% year-over-year in December.2 That’s the slowest pace since late 2021 but still well above the Federal Reserve’s (Fed) goal of 2%.
January labor market data published this morning shows a surprising 517K jobs added in January, crushing the estimated 188K jobs.3 The unemployment rate did not change much, coming in at 3.4% —on par with December’s 3.5%.
Despite inflation showing signs of easing, the US Federal Reserve (Fed) is expected to hike rates again at its first meeting in 2023, though at a slower pace — just 25 bps compared to the 50 bps increase in December. In Europe, both the European Central Bank (ECB) and the Bank of England (BoE) are expected to raise interest rates by 50 bps this week.
While the rest of the world faces weaker demand amid monetary tightening, China’s reopening may unlock significant pent-up domestic demand.
Following the Chinese government’s earlier-than-expected easing of its strict Zero COVID policy, Chinese equities have rebounded strongly — up 59.9% since October — raising investors’ hopes for a growth recovery in 2023.4 And the Chinese government has committed to supporting growth with monetary and fiscal stimulus.
Early consumption figures from Lunar New Year showed signs of recovery, too, with domestic travel back to 90% of pre-pandemic levels. This may fuel optimism of a further consumption rebound and a faster-than-expected recovery.5
And despite their recent strong performance, Chinese equities’ valuations remain constructive.
Their price-to-earnings (P/E) ratios are in the 57th and 49th percentile over the past 15 years on an absolute basis and relative to US equities, respectively.6
Chinese Equities’ Valuations Remain Constructive
Investors may want to consider the SPDR® S&P® China ETF (GXC), which seeks to provide exposure to the investable universe of publicly traded companies domiciled in China, available to foreign investors. GXC has already seen flows pick up, and was the top-performing US SPDR ETF in December. It has maintained a top-decile position thus far in January, too.7
GXC Standard Performance as of December 31, 2022
1 Bureau of Economic Analysis, as of January 26, 2023.
2 Bureau of Economic Analysis, as of January 27, 2023.
3 Bureau of Labor Statistics, as of February 3, 2023.
4 Bloomberg Finance, L.P., as of January 27, 2023. Based on MSCI China Net Total Return USD Index.
5 Bloomberg Finance, L.P., as of January 27, 2023.
6 FactSet, as of January 25, 2023.
7 Morningstar, as of January 27, 2023.
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