A historic shift is taking place in China that is set to have long-term impacts for both the domestic and global economy. According to the National Bureau of Statistics, the nation’s total population fell by 850K in 2022 to 1.412B, marking the first decline since 1961. In the near term, things may even escalate quicker than expected as deaths outstrip births. COVID-related fatalities are quickly spreading through the population – and could lead to a toll in the millions – as the country gives up on its strict zero-COVID policy.
Snapshot: China has long been a key source of labor and demand, but its birth rate has continued to decline as couples delay or decide against having children. That’s despite the lifting of the government’s one-child policy in 2015, and incentives rolled out in 2021 that encouraged people to have more babies (tax deductions, housing subsidies and longer maternity leave). Sky-high education costs have also led to one of the lowest fertility rates in the world, as well as a trend towards rapid urbanization in a country that had traditionally been rural.
Baby-related Chinese stocks sold off sharply following the latest announcement. Kidswant Children Products and incubator maker Ningbo David Medical Device tumbled around 8%, while baby formula manufacturer China Feihe (OTCPK:CFEIY) fell as much as 3% in Hong Kong. Adding to the fears overnight was the latest economic figures, which slumped to one of their worst levels in nearly half a century. China’s GDP growth expanded by only 3% in 2022, missing the official target of “around 5.5%” and slowing sharply from the 8.4% growth recorded in 2021.
Outlook: The demographic trend calls into question whether China will get old before it gets rich. The United Nations also projects that in 2023, China will lose its status as the world’s most populous country to India, whose estimated 1.4B population is still growing. On that note, SA contributor Macrotips Trading points to the iShares MSCI India ETF (INDA) for boosting exposure to large- and mid-cap Indian equities as the country revs its growth engine. In the short term, India is benefiting from access to discounted Russian oil – which has allowed the economy to grow rapidly with relatively less inflation than others – and in the long term, India is forecast to have the largest working-age population, setting it up to be the world’s manufacturing hub. (7 comments)
Activist investor Ryan Cohen has reportedly amassed a stake worth hundreds of millions of dollars in Alibaba (BABA) and wants the company to pursue more share buybacks. Cohen, founder of online pet retailer Chewy (CHWY), has gained fame in recent years among meme-stock traders, especially for his stake in GameStop (GME), where he later became chairman. News of Cohen’s stake in Bed Bath & Beyond (BBBY) originally sent its shares soaring 34% on March 7 and a disclosure that he had exited his stake sent the stock plunging 41% on Aug. 19. Will the same happen at Alibaba? (37 comments)
The latest gathering of the world’s political and business elite, plus the usual smattering of celebrities, is taking place this week at the Swiss Alpine resort of Davos. The annual meeting of the WEF comes as economic storm clouds gather for the global economy, and as the ‘r’ word becomes featured on many corporate earnings calls. In fact, recession has become the top concern for CEOs worldwide, according to a recent survey by The Conference Board. Tomorrow, Treasury Secretary Janet Yellen will also meet her Chinese counterpart Liu He as tensions linger between the world’s two largest economies.
Return on equity for the broader market has been lackluster for the past three quarters and this year will likely see a drop in median S&P 500 (SP500) (SPY) ROE, according to Goldman Sachs. “An upwards inflection in S&P 500 ROE will be difficult to achieve in 2023, as headwinds from a higher cost of capital and higher taxes will place further strain on profitability,” equity strategist David Kostin wrote in a note. Goldman rebalanced its ROE growth basket, adding new names to the 50 stocks it expects to beat the broader market (where the median ROE is expected to be -6%). New names include PepsiCo (PEP), Wells Fargo (WFC) and AMD (AMD). See the rest here. (45 comments)
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