Fears about China’s slowing economy won’t squeeze Singapore’s growth, or its stocks
IS CHINA stalling? Headlines pin sluggish Singapore exports partly on China’s “slow” reopening, fearing worse to come. Some worry that the days of China’s roaring growth are behind it, depriving Asia of key economic fuel.
Don’t fret. Two years of real estate and regulatory headwinds are fading, and China need not produce jaw-dropping growth for Singapore’s economy to benefit.
Global stories lament China’s disappointing recovery since ditching zero-Covid policies last year. Singapore, for one, saw a 21.4 per cent year-on-year plunge in Chinese exports in April.
China wasn’t fully locked down in 2022, though. Hence, it was never primed for the 2020-style, big bang reopening that turbocharged Singapore’s exports through 2021.
Besides, China’s reopening boost this time is centred on services – and less likely to boost city exports. Its normalisation does lift global growth, though, and a potential visa-free travel agreement could aid Singapore’s tourism.
Other headwinds are fading, too. Take real estate. The Chinese government’s crackdown on gearing and developer debt woes had sparked fears of property market turmoil. Now, government support is spurring a real estate rebound.
New home sales have risen four straight months. Sale prices of commercial buildings rose in 63 of 70 cities in April. The dreaded backlog of presold, unfinished homes is clearing.
Bears argue that sales remain below pre-pandemic levels, and slowed in April. But every recovery starts from depressed levels. They aren’t linear. Don’t sweat minutiae. See the bigger picture.
Government support for Alibaba’s reorganisation hints at China’s big tech regulatory crackdown ebbing, too. Ditto for new initial public offering (IPO) rules, which could let Chinese firms list overseas again. Halted gaming licence issuance resumed, too, helping in a small but high-profile industry.
Chinese tech shares have slid since mid-April, partly on artificial intelligence (AI) regulation news, but lingering pessimism belies the broader reality – generally loosening governmental reins and solid first-quarter sales and earnings. That disconnect is opportunity, not a threat.
China and US tensions? Overblown. Today’s TikTok spats and chip wars are more bark than bite, their importance exaggerated by AI hype. Markets know that. US chipmaker Micron’s shares rose 8.9 per cent in the week after China banned it from key infrastructure projects.
Sure, supply chains may reshuffle as politicians play games. Maybe that benefits Singapore chipmakers. Maybe not. Regardless, as Europe’s energy industry showed last year, reshuffling can happen fast. China’s rare earth product and magnet technology export threats, meanwhile, are merely a bargaining chip.
China bears are right about this: In the longer term, growth has slowed from China’s early-2000s boom. Those rates won’t return. Some call 2022’s 3 per cent GDP growth a hard landing harbinger.
This may seem scary to Singapore investors, given that China was 12.4 per cent of the Republic’s 2022 exports. But commentators have fretted about hard landings for years amid gradually slowing Chinese growth, from over 10 per cent annually between 2002 and 2011, to 6 per cent in 2019. No hard landing struck until Covid lockdowns.
The slowdown isn’t a flaw. It is a feature of the law of diminishing returns. Initially, connecting two towns via rail or highway unleashes economic activity and massive returns on investment. Each subsequent connection yields increasingly less. Huge results can’t last indefinitely.
The good news? A far bigger base means smaller percentage GDP gains add more actual output volume than the boom years. Indeed, Singapore’s China-bound exports have more than doubled since 2007, even as China’s headline growth rate slowed.
Consider that China’s 14.2 per cent 2007 GDP spike added about 4.9 trillion yuan (S$934 billion) to global GDP, and 2019’s 6 per cent growth added 5.6 trillion yuan. Even a 2023 repeat of 2022’s 3 per cent growth would add 3.4 trillion yuan to global GDP, around half of 1 per cent. Not super, not bad. It should be higher, however, maybe at 5 per cent.
Still, many fear China’s struggles or new Covid waves weighing on Singapore’s exports, imperilling GDP and stocks. But Singapore is no one-trick export pony. Last year, shipments to China slipped 3 per cent. Yet, overall exports rose 15.6 per cent. Exports to Malaysia and the US increased 25.8 and 20.2 per cent, respectively. Those to Australia were up 30.7 per cent. Japanese and Thai shipments grew double digits, too.
Moreover, exports don’t dictate stock performance, nor GDP.
In 2019, Singapore’s exports fell 4.2 per cent. Yet, GDP rose 1.3 per cent and the Straits Times Index (STI) climbed 9.4 per cent. In 2018, exports rose 7.9 per cent and GDP jumped 3.6 per cent; the STI fell 6.4 per cent. Go back to 2015 and exports shrank 6.5 per cent, GDP climbed 3 per cent and the STI slid 11.2 per cent.
So, ignore the doubters; embrace China’s hated recovery for what it is – another boost for the world’s budding bull market.
The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally.
