Happy Chinese New Year! What’s ahead for the Chinese markets?

Looking back on 2021, people’s daily lives were gradually getting back on track and so was the economy. Many countries implemented “zero interest rate” policies and fiscal stimulus plans, effectively boosting economic growth and supporting market liquidity. Let’s take a closer look at what happened in the markets, both globally and in China.

2021 Market Performance Review

The FTSE Global Markets Index is up 18.40% over the past year, with an average annual return of 20.56% over the past three years. US stock indices dominated the markets: the Dow Jones index rose 18.7% for the year, the S&P was up 26.8%, and the Nasdaq gained 21.39%. Financial indices in most European countries also posted double-digit gains in 2021. The FTSE 100 index rose by more than 14%, which is also the best performance in history since the Brexit referendum in the past five years. 

However, the past year has been full of challenges for the Chinese market. The overall advance of education, real estate and other industries have been comparable to the prosperity of the global markets. The Shanghai Composite Index rose only 4%, and the CSI Overseas China Internet Index plummeted -48% to 5498 points, its lowest level since 2017.

China’s Economic Outlook

On January 17, 2022, the National Bureau of Statistics of China announced the preliminary accounting results of GDP for 2021. In terms of quarterly GDP, the first quarter of 2021 increased by 18.3% year-on-year, the second quarter was 7.9%, the third quarter was 4.9%, and the fourth quarter was 4.0%. The third and fourth quarters were the lowest growth rates in the past six years. Looking back at the past 10 years, China’s GDP growth rate has slipped into the “70s” since 2012, and regressed to the “60s” after 2016:

It might be more challenging to achieve the economic growth target in 2022. Chinese officials at the Central Economic Work Conference held in December 2021 stated that the local economy faced shrinking demand, supply shock, and the pressure of weakening expectations.

Despite the difficulties, China’s manufacturing and retail indicators rose in the final quarter of the year after slow growth in the third quarter, once again demonstrating the resilience of the Chinese economy.

China has also placed special emphasis on the development strategy of “steadiness and progress while maintaining stability.” Although the World Bank has predicted that China’s economic growth may slow to 5.1% in 2022, the approximate 5% growth in the Chinese economy which is worth approximately 17 trillion US dollars may be notable. 

The Chinese government has also successively introduced policies to boost the economy. The People’s Bank of China cut key lending rates to lower borrowing costs for individuals and businesses and encourage consumption and investment. In addition, the People’s Bank of China lowered the bank’s reserve requirement ratio by 0.5 percentage points. This RRR cut released a total of about 1.2 trillion yuan of long-term funds, laying a solid foundation for economic development in 2022.

Risk and opportunity

Last year, China’s Internet industry became the focus of a regulatory storm, with extensive monitoring of monopolistic behavior, cybersecurity risks, and consumer data protection. The CSI Overseas Technology Index has nearly halved in the past year. The average price-to-earnings ratio of stocks in the China Technology Index is nearly 18, far below that of the Nasdaq 100 Index of 39. However, China has indicated that it will continue to invest in development in many industries, such as climate, electric vehicles, healthcare, Internet, cloud computing, and high-end manufacturing. 

In celebration of the Spring Festival of the Year of the Tiger 2022, we wish you all good health and good luck!