Market Round-Up

August 2023 was marked by the largest single-month Chinese equities sell-off amid a deepening crisis in the country’s property sector. The Shanghai and Shenzhen stock exchanges recorded net sales of US$12.4bn by offshore traders as the Chinese economic climate unnerves foreign investors. This can be attributed to a lack of major government fiscal stimulus spending which was hoped to bolster activity in a relatively sluggish post-pandemic economy. The Chinese Communist Party (CCP) has been unable to change investor sentiment, deciding to retune property policy and cut interest rates. However, it offered nothing amounting to a large-scale economic stimulus which may have encouraged overseas investors.

It was hoped that a stimulus package would encourage consumer spending as uncertainty in the domestic housing market is keeping consumer confidence below pre-pandemic levels. Instead, saving rates remaining high despite the abandonment of the country’s zero COVID policy earlier this year. The CCP has signalled a desire to prioritise security and self-reliance over short-term economic performance. The Government has been channelling spending towards the strategically important technology sector as well as deciding to reform and stabilise the over-leveraged domestic real estate market.

Therefore, bearish remarks are unlikely to cause a reorientation in the CCP’s strategy. Gina Raimondo, United States Secretary of Commerce, had previously described the Chinese economy as increasingly “uninvestable” in the eyes of US companies.

In the UK, nominal wage growth in the three months to June 2023 increased by an annual rate of 7.8%, the fastest pace since 2001 when records began. This exceeds the wage growth of the UK’s peers in the eurozone and US where the figure has been just over 4%. Workforce shortages are seen as the key driver of this trend, with supply unable to meet demand in the UK’s tight labour market. Additionally, April’s 9.7% National Living Wage increase is another catalyst behind this trajectory, likely forcing the Bank of England to raise interest rates to 5.75% towards the end of 2023 to prevent the growth in real income from fuelling further inflation.

The financial services sector has benefited the most, recording the highest wage growth across the various sectors of the economy. This is because a high interest rate environment increases profit margins for financial services firms as lenders can grant loans at a higher rate while keeping returns on deposits low. This enables these firms to allocate more funds towards employee wages. On the contrary, wages for construction sector workers rose by only 5.8% as rising mortgage rates reduce the amount of home purchases, harming the bottom-line of construction companies. Wage growth is expected to stay strong as the number of vacancies remains high and unions continue to demand higher pay.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.