While 2023 has been a remarkable year for global stocks, witnessing the best performances since before the pandemic, China stands out as the notable exception. The world's second-largest economy has faced a series of challenges, including a real estate crisis, subdued consumer spending, and high youth unemployment, placing it at a disadvantage in the global market.
The Chinese blue-chip CSI 300 index witnessed a decline of more than 11% this year, while Hong Kong's Hang Seng Index fell almost 14%. In contrast, the MSCI World index is set to close the year with a 22% gain, its most significant annual increase since 2019.
Other major stock indices around the world, such as the US S&P 500 and Europe’s Stoxx 600, have shown impressive gains, with Japan’s Nikkei 225 and India’s Sensex also posting strong rallies. These increases have been fueled by falling inflation and growing optimism about central banks cutting interest rates.
Additionally, the excitement around the potential of artificial intelligence to boost corporate profits has contributed to this upward trend.
China’s Economic Hurdles and Oil Price Impact
Despite abandoning its stringent coronavirus lockdowns in late 2022, China's economy has not experienced the robust recovery many investors anticipated.
The International Monetary Fund (IMF) forecasts China's growth rate to reach 5.4% in 2023 but gradually decline to 3.5% by 2028, as the country grapples with issues ranging from weak productivity to an ageing population. Derek Scissors, a senior fellow at the American Enterprise Institute, expressed concerns that while GDP growth in 2024 might surpass 4.5%, the only direction from there is downward.
China's economic difficulties have also contributed to significant drops in oil prices this year. Brent crude and West Texas Intermediate crude have experienced declines close to 9% and over 10%, respectively. As the world’s largest oil importer, signs of diminishing demand in China have led to investor sell-offs.
Moreover, record levels of oil production in the United States have further driven these price declines, with the US Energy Information Administration anticipating an all-time high average output of 12.9 million barrels per day this year, and an expectation of reaching new records in 2024.