Why Canadian investors should care about China’s slowdown
Global News
Analysts and institutional investors say a slowdown in China – the world's second-largest economy and Canada's second-largest trading partner – would have global knock-on effects.
As Canada’s central bank tries to cool the economy with another likely interest rate hike in September, authorities in China face a very different problem: slowing growth.
China’s economic issues may seem a world away for inflation-weary Canadians, but it pays for investors here to keep an eye on the other side of the Pacific, said Cyrus Kanga, an instructor at Camosun College’s School of Business in Victoria, B.C., and a former equities trader at Hong Kong-based brokerage CLSA.
“The (Chinese) economy has been such a global driver for the last decade or two,” he said. “Now that that’s shifting, that should be something that investors here are paying attention to, even if they don’t own Chinese stocks.”
Analysts and institutional investors say that a slowdown in China – the world’s second-largest economy and Canada’s second-largest trading partner – would have global knock-on effects. Even investors focusing on Canadian stocks or mutual funds may find that they are exposed to unexpected risks.
“Given China’s importance from a trade standpoint, one has to take into account exposures to the various countries that they do trade with and the effects they will have on those countries,” said Sandy McPherson, the chief investment officer of the City of Edmonton, which has investments in Chinese companies.
McPherson says he views Canadian exports to China as an important gauge of the health of the Chinese economy. China’s record trade surplus last month with its global partners indicated not just a rise in exports from China, but that an anemic domestic economy has suppressed demand for imports.
After years of strict measures to control the spread of COVID-19, Chinese consumers are more reluctant to spend, factory output is growing more slowly and new investment from companies not owned by the state is drying up.
COVID-19 controls ground China’s largest city, Shanghai, to a halt for two months earlier this year, and citizens across the world’s most populous country remain on edge as local authorities clamp down on even small outbreaks. Japanese brokerage Nomura calculated that nearly 80 million people in 22 Chinese cities accounting for 8.8 per cent of the country’s economic activity were under full or partial lockdowns as of Monday.
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