[MarketING] Chinese Economy, Still More Concern Than Expectation

KOSPI Closes Below 2380
Weak Chinese Economic Data Sparks Recession Fears

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI closed lower for the first time in ten days amid concerns over a slowdown in the Chinese economy. Expectations for a recovery in China's economy had grown with the 'With Corona' policy, but these hopes somewhat faded as weak economic indicators confirmed the economic downturn in China.

KOSPI Closes Lower for the First Time in Ten Days

On the 17th, the KOSPI closed at 2,379.39, down 20.47 points (0.85%) from the previous day. The KOSDAQ ended the session at 709.71, down 7.18 points (1.0%). The KOSPI fell below the 2,380 mark, and the KOSDAQ dropped below 710.

Although individual investors stepped in to buy, supporting foreign investors, it was insufficient to defend the index. On the day, individuals purchased stocks worth 128 billion KRW and foreigners bought 180.8 billion KRW on the KOSPI market, but institutions sold off 311 billion KRW. In the KOSDAQ market, individuals were the sole net buyers with 215.1 billion KRW, while institutions and foreigners sold 133.5 billion KRW and 72.2 billion KRW, respectively.

After a steep rise recently, the market showed signs of fatigue and started the day weak, entering a consolidation phase. Economic data released during the session heightened concerns about a recession in China, further dampening investor sentiment and widening the losses.

On the 17th, China's National Bureau of Statistics announced that China's GDP for last year was 121.0207 trillion yuan (approximately 2,223.51332 quadrillion KRW), marking a 3.0% increase from the previous year. Except for 2020, the first year of the COVID-19 outbreak (2.2%), this is the lowest growth rate since 1976 (-1.6%), the final year of the Cultural Revolution. Park Sanghyun, a researcher at Hi Investment & Securities, stated, "It has been confirmed through the GDP growth rate that the Chinese economy has effectively entered a recession phase. Although the fourth-quarter GDP growth rate of 2.9% exceeded the market expectation of 1.6%, allowing the annual GDP growth rate to barely reach 3%, it is difficult to deny that the Chinese economy has entered a recession."

Most economic indicators, including production, consumption, and investment, deteriorated. Jung Yeogyeong, a researcher at NH Investment & Securities, said, "The spread of COVID-19 disrupted factory operations, and the surge in unemployment caused retail sales to decline throughout the fourth quarter. Real estate investment also shrank by 10% year-on-year, widening the decline, and due to weak demand from advanced countries, exports and imports turned negative in the fourth quarter. As a result, China's economy barely grew by 3% last year, failing to meet the government's growth target of 5.5%."

Chinese Consumption Recovery Expected from Q2

Although the worsening figures confirmed the recession in China, consumption is expected to revive from the second quarter as the reopening effect takes hold.

Researcher Jung explained, "The momentum for China's economy in 2023 lies in consumption, and the smooth progress of reopening will determine this year's economic performance in China. East Asian countries have tended to see consumption recover two to three months after reopening measures."

Until the first quarter, economic activity is expected to remain subdued due to the continued rise in COVID-19 cases caused by Lunar New Year travel, but from the second quarter, meaningful consumption growth is expected to become visible due to base effects and reopening impacts.

Researcher Jeong Seongtae of Samsung Securities said, "According to the Chinese government's announcement, the COVID wave in major cities has peaked, and the first wave is expected to end in most regions after the Lunar New Year. Accordingly, the reopening effect will accelerate, and economic indicators, especially consumption, will improve rapidly."

This content was produced with the assistance of AI translation services.