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Bourse
By Romain Dion
Published on 09/09/2021 at 07:01 – Updated on 09/09/2021 at 07:01
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Citi Research strategist Robert Buckland encourages caution on the stock market on the most exposed companies.
Robert Buckland at Citi Research looked at the implications for financial markets of the slowdown in the Chinese economy.
The pace of growth has slowed in the country, penalized by a restriction in credit and social spending. The summer struggle against the Delta variant also slowed the recovery in the service sector.
The slower growth in activity is expected to continue, even if a possible easing of monetary policy would provide support.
The Chinese slowdown will continue
Citi Research forecasts Chinese GDP growth of 6% in the third quarter of 2021 and 5.1% in the fourth quarter of 2021, then 5.5% next year (after 8.7% for this year as a whole).
The strategist of the American bank also underlines the important risks on the regulatory plan, related to the taking back in hand of the private sector engaged by the Communist party which affirms its will “redistributive”.
Asian economies, Taiwan and South Korea, and commodity-exporting countries, Australia, Chile, South Africa, are the most vulnerable to the Chinese slowdown.
Open economies in Europe, such as Germany, are also exposed.
Despite a 30% drop, Chinese stocks do not look particularly cheap, at 13 times expected profits over the next twelve months (compared to a ten-year average ratio of 11 times).
Emerging stock markets weakened
Citi Research maintains a negative opinion on emerging stock markets, penalized by the Chinese slowdown.
In the raw materials sector, China accounts for between 40% and 70% of global demand. Iron ore and copper used in construction and infrastructure are the most exposed.
Regarding mining groups, the impact of a drop in Chinese demand should be offset by better supply discipline, attractive valuation ratios and sustained demand in the rest of the world, estimates Citi Research.
Luxury and techno on display
Other sectors exposed to China such as luxury have suffered recently. These values should remain under pressure, as long as the Chinese leading indicators (PMI) do not show a positive inflection.
Among the large American companies most exposed to the Chinese market, we find Apple (a quarter of its turnover), Qualcomm (67% of sales), Micron Technology (57%), Broadcom (49%).
In Europe, this is the case for Valeo (30% of sales), Daimler (35%), BMW (35%), Hermes International (25%), Dry and LVMH (more than 30%), Swatch (36%).
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