The US may no more be the largest economy in 2024 as China is forecasted to snatch the crown. Analytics firm IHS anticipates China’s nominal gross domestic product to reach $28.25 trillion in 2024, beating the US’ projected GDP of $27.31 trillion. The chief Asia economist of the firm believes the economy will “re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific (APAC) as a region.”
It is consumer spending that is expected to play a vital role in helping China topple the US economy. Consumer spending is forecasted to grow at 7.7% annually in real terms in the next 10 years. China’s share in global GDP is forecasted to be at 20% in 2025, up from 12% in 2013.
Long-Term Prediction Risks
However, such a long-term view is always devoid of factoring in the series of events that may turn up in these 10 years. Be it qualitative or a quantitative forecasting that may again include indicator approach or time series methods, several new issues may crop up and may change the scenario.
If we look at 2014 alone, macroeconomic issues including the Russia-Ukraine crisis or Middle East tensions have certainly changed many views so far. For example, sanctions against Russia and then by Russia on Western nations have affected trade relations, indicating the possibility of hampering trade balance and then the GDP.
For short to mid-term investors it is thus prudent to take note of the recent past events and look for how investments can shape up in the near term. On that note, the recent economic data in China and related events do not suggest a bullish trend. Manufacturing data has been largely weak for some time now, housing sales are down and investment demand has been dismal.
China’s Economy Faces Immediate Hurdles
China’s economy also faces many hurdles. IHS’ chief Asia economist said that China needs to convert economy from “low-cost manufacturing export-driven economy of the past three decades into a higher value-added economy, competing in more sophisticated, higher value-added exports.”
A report by Fox Business argues that “A country’s wealth is not based on consumer transactions occurring during a calendar year. Cheaper currency to buy cheaper goods or services doesn’t equate to wealth — nor does arming consumers with more paper in their wallets.” The debate gains strength amid an environment where the country is devaluing its currency.
Certain sector specific steps to stimulate growth itself hints at the sorry state of the economy. Such steps had become necessary following weakness in the property sector and a series of dismal economic reports. This includes industrial production, foreign investment and home prices
A slowdown in the property sector and problems with the country’s banking system has put the brakes on China’s economy. The slide in the real estate sector has also impacted the growth rate, with the economy expanding only by 6.3% in August on an annual basis. This is a grievous decline from the 7.4% increase experienced in July.
If the situation continues to deteriorate, the economy also runs the risk of missing its yearly growth target of 7.5%. The area of new property under development has fallen by 14.4% till now this year.
President Xi also needs to move China away from a tendency of using nationally owned banks to boost the economy when it veers away from its growth path. This habit has led to an excessive allocation of a large amount of resources to infrastructure and property sectors.
Recently, China Finance Minister Lou Jiwei stated that government will not “make major policy adjustments” based on any one economic indicator. Recently, a report showed that China’s industrial production expanded at the slowest pace since Dec 2008. Industrial production increased by 6.9% in August year over year, less than 9% in July.
3 Stocks to Sell
Here we will suggest 3 stocks that are currently carrying unfavorable Zacks Ranks and have seen prices dropping over the past four weeks. These stocks are also seeing negative earnings estimate trends.
Yingli Green Energy Holding Co. Ltd. (YGE) is a leading vertically integrated manufacturer of photovoltaic products in China. Headquartered in Baoding, the People’s Republic of China, the company also operates in the US, Germany, France and the UK, among others.
Yingli carries a Zacks Rank #4 (Sell) and has lost 4.5% in the last month. Current quarter estimates moved down from break even to loss of 13 cents over the past month, while current year loss estimates widened from loss of 39 cents to loss of 71 cents.
JD.com, Inc. (JD) operates as an online direct sales company in China. The company, through its website www.jd.com and mobile applications, offers a selection of products ranging from computers; mobile handsets and other digital products, home appliances; automobile accessories; clothing and shoes; to books, e-books, music, movies and other media products.
JD.com carries a Zacks Rank #4 (Sell) and has lost 12.9% in the last month. Current quarter estimates moved from loss of 2 cents to loss of 5 cents over the past two months, while current year loss estimates widened from loss of 49 cents to loss of 60 cents.
Mindray Medical International Limited (MR) conducts much of its business through its consolidated operating subsidiary, Shenzhen Mindray, which was established in 1999. Mindray owns about 99.9% of the equity of Shenzhen Mindray. It maintains its global operational headquarters (HQ) in Shenzhen, China, while the U.S. HQ is in Mahwah, New Jersey. Mindray is a developer, manufacturer and seller of medical devices globally.
Mindray Medical carries a Zacks Rank #4 (Sell) and has lost 3.2% in the last month. Current quarter estimates moved from 48 cents to 43 cents over the past two months, while current year dropped from $1.96 to $1.81.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment