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US stocks are in the firing line if China’s economy stalls further


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Chinese economic activity has hit a soft spot in recent weeks and Hong Kong’s equity markets have flirted with bear territory as a result.

That’s also bad news for US companies with major exposure to China — and a number of S&P 500 companies stand first in the line of fire if the situation worsens. 

What’s happening: China’s swift economic reopening in December after three years of severe pandemic restrictions was hailed as a catalyst that would send global growth into overdrive. 

Pent-up consumer demand and a resurgence of manufacturing by the world’s second-largest economy is expected to drive about 35% of the world’s growth in 2023, according to recent projections from the International Monetary Fund. 

China’s reopening has had positive effects: Factories had their best month in nearly 11 years in February and the country’s economy grew by 4.5% in the first quarter of the year. But recent data shows such positivity may have been short-lived.

Chinese exports fell 7.5% year over year in May as global demand weakened. Recent data shows that China is also contending with worse-than-expected consumer spending, slowing manufacturing and weak home sales. Youth unemployment has hit 20% in urban areas, according to official data, a record high. 

Growing geopolitical tensions between Washington and Beijing have spooked investors, driving market volatility. A recent crackdown on American consulting companies like Bain, Capvision, Mintz Group and Micron Technology

(MU) has worried multinational businesses, said US Ambassador to China Nicholas Burns on Wednesday. 

“Investor views about China remain pessimistic, partly because of skepticism about near-term growth momentum and partly because of worries about the longer-term outlook,” wrote Goldman Sachs analysts in a note on Tuesday. 

China, home to more than 1.4 billion people, saw its population drop in 2022 for the first time in more than 60 years. A shrinking population means lower consumption. When Beijing made the announcement in January, global stocks were roiled. The Dow fell by 300 points and the Nasdaq Golden Dragon Index, which follows Chinese firms on American exchanges, fell by 4%. 

What it means for markets: US-based companies doing business in China stand to lose if the economy continues on a downward trajectory. Companies like Apple

(AAPL), Intel

(INTC), Ford

(F) and Tesla

(TSLA) have large manufacturing ties to the country.

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