Why China’s faltering economy could soon become a top-of-mind concern for the US stock market

China’s slowing economy could weigh on US-listed stocks in the second half of 2023.REUTERS/Kim Kyung-Hoon

US stocks have started 2023 on a tear, with the benchmark S&P 500 up 14% year-to-date.

But China’s slowing growth poses threats to the rally, given American companies’ huge business exposure to the Asian economy.

US-listed companies’ profits could fall if the world’s second-largest economy keeps floundering.

China’s economy is floundering – and that could be bad news for Wall Street.

From a slowdown in industrial production to plunging import and export levels, investors are assessing warning signs that Beijing is struggling to restart growth after it ended its hard-line zero-COVID restrictions late last year.

The People’s Bank of China has responded by slashing key interest rates, in a hope that lower borrowing costs will revive slumping spending levels.

But even those measures have failed to soothe investors, with the benchmark CSI 300 stock-market index slipping 0.2% last week after the bank lowered mortgage-linked loan repayment rates.

And stagnating growth in China could soon become a pain point for US stocks – which have started the year on a breakneck tear – as well.

The AI craze has fueled a massive rally for mega-cap tech stocks like Nvidia and Microsoft – with their colossal share-price gains lifting the benchmark S&P 500 14% and the Nasdaq Composite 31% year-to-date.

But many of the stocks that are surging do huge amounts of business in China, so could see their earnings take a hit if the PBoC’s latest efforts fail to spark a revival.

Big Tech giants Nvidia and Tesla both feature in a list of the 25 listed companies most exposed to the world’s second-largest economy, according to a list published by Bank of America earlier this year.

Apple and Ford also manufacture vast amounts of goods in China, while Nike and Starbucks derive a significant proportion of their earnings from selling to people there.

US-listed Chinese companies are already suffering from the slowdown, with shares in the e-commerce giant JD.com plunging 35% year-to-date.



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