China: Strong Economy, Weak Stocks

China’s domestically driven economic growth has not yet translated to Emerging Market stock performance, which has tended to have been weighed down by international political tensions.

Although we maintain a positive view on developed international stock market performance this year, emerging market (EM) stocks continue to be a tougher call given their heavy exposure to China. Yet, EM stock market performance could improve later in the year if U.S.-China tensions begin to cool.

Back to BRIC era

China’s economic data once again exceeded expectations last week. To put it in perspective, the data has been so much stronger than economist forecasts that the positive surprises are the highest since 2006, a year that marked the end of the BRIC (Brazil, Russia, India and China) era of booming growth.

Not since the end of the BRIC era has China’s data come in so far ahead of forecasts

Line graph showing China Economic Surprise Index level from 2004 to present.

Source: Charles Schwab, Bloomberg data as of 4/22/2023.

According to the National Bureau of Statistics of China:

  • China’s GDP growth picked up from a pace of just 0.6% in the fourth quarter to 2.2% in the first quarter. If it were reported like U.S. GDP, that is nearly 9% at an annualized rate.
  • March data showed retail sales were up 10.6% following a 3.5% rise in the January-February period. Notably, auto sales increased 11.5%, swinging from a -9.4% drop in January-February.
  • Property sales swung to a 0.1% gain in March from a 3.6% decline.
  • A rebound in the services helped push down the urban unemployment rate to 5.3% in March from 5.6% in February.