China in the Spotlight as 2023 Gets Underway – Reuters

By Jamie McGeever

In today’s look at the Asian markets, global trading activity is set to ramp up on Tuesday, with new insights expected from China’s manufacturing sector. The Caixin manufacturing purchasing managers index (PMI) for December is anticipated to remain in a recessionary state, dropping to 48.8 from November’s 49.4.

This follows official PMI data released over the weekend, which revealed the most significant contraction in nearly three years, attributed to a surge in COVID-19 cases that impacted production lines following Beijing’s sudden easing of anti-virus measures.

China’s economy is currently facing substantial economic, political, and social upheaval, a situation likely to intensify in the coming weeks and months due to the recent shift away from its zero-COVID policy. According to UK-based health data firm Airfinity, approximately 9,000 individuals in China may be dying each day from COVID, with the peak of cases expected around January 13, potentially reaching 3.7 million daily infections.

A robust recovery in China would provide a necessary lift to the global economy this year. However, the implications for asset markets remain unclear, as possible inflationary pressures from the reopening could lead central banks to maintain elevated interest rates for an extended period.

Economic forecasts indicate a strong consensus among economists that the U.S. economy is likely to enter a recession this year, which raises concerns about earnings and equity performance. While some investors view this as an opportunity for a contrarian bullish investment approach, fears surrounding COVID in China may overshadow any long-term benefits and dampen market sentiment.

Investor sentiment has undoubtedly shifted as they welcome the end of 2022, a year marked by significant losses in global stock markets totaling around $14 trillion and a poor performance in bonds. A traditional ’60-40′ portfolio of stocks and bonds had one of its worst years in nearly a century, largely due to nearly 300 interest rate hikes worldwide. Although much of the tightening has been implemented, the full impact has yet to be realized.

A cautious start to the year along with a disappointing Chinese PMI report would not be unexpected.

Here are three key developments to watch in the markets on Tuesday:

• Australia manufacturing PMI (December)
• China Caixin manufacturing PMI (December)
• U.S. manufacturing PMI (December)