Economic Forecast, November 2023: China, Europe, the US and Japan

As usual, I am giving you full-on fortune-teller predictions with very little explanation.

CHINA

The diplomatic and economic results of the APEC meeting were limited. Any short-term benefit to the market can almost be ignored.

Jack Ma must have felt his heart being cut when he sold his Taobao shares, but there is nothing anyone can do when an era passes. Economically, that move matters far more than all the other pieces of good news. A-shares and US-listed Chinese stocks will keep falling. Shorting Chinese companies in the US market is particularly worth considering.

The economic decline caused by falling exports will be extremely difficult to bear. The shock will gradually hit tax revenue and create larger local fiscal deficits. Rebalancing those deficits will further reduce the long-term growth potential of China's strongest economic regions, including Jiangsu, Zhejiang, Shanghai and the Greater Bay Area.

Large-scale stimulus and a 180-degree turn toward economic opening may arrive in the first quarter of 2024. If they do not, the Chinese economy may continue breaking through what once looked like the floor.

A rebound in the RMB would add insult to injury for an economic recovery. At present, imports in China's foreign trade are still growing while exports remain weak. A stronger RMB hurts goods exports. It does help the purchase of services, of course, including tourism.

Judging from both the past and the present, it is extremely difficult for China to drive growth through consumption, especially domestic consumption. This is closely tied to Chinese culture: little respect for services, luxury spending or debt; praise for thrift and saving, etc. Social consumption cannot easily serve as the engine of growth. At the same time, the chain reaction from exploding real-estate debt has left corporate debt in a high-risk state. Once again, every road points back to large-scale government investment as the way to stimulate the economy. I therefore remain optimistic about domestic infrastructure.

The new-energy vehicle industry is basically a bubble. After the wave has washed the sand away, I doubt many companies will be left standing.

The Chinese government is trying hard to rescue the economy. Its arrogance during that rescue, and its disregard for the rule of law, will sharply limit the result.

One unpleasant possibility is that after making a 180-degree turn, it makes another 180-degree turn...

EUROPE

First, Europe's economic future may be even worse than China's...

Germany, unwilling to be left behind by China's theory of "overtaking on a bend," has invented overtaking while driving the wrong way. It is racing alone down the road to national suicide. Among major countries, few can even see its back.

Political correctness is killing Europe's economic vitality. A lack of investment and innovation has left its leading companies living off old capital, while green policy tightens around the necks of its traditional giants. They cannot breathe, are given nothing to eat, must donate blood without end, and after squeezing out their last two coins are still expected to mind everyone else's business. That is Europe today.

Leaving most of the politics aside, the lack of innovation and the slowness of response among European companies are outrageous from an economic point of view.

At the same time, however, the renewal of Europe's infrastructure may offer a very rare opportunity.

THE UNITED STATES

The Federal Reserve will most likely enter a rate-cutting cycle in 2024 and begin pumping liquidity into the market, completing the dollar harvest cycle. I do not mean "harvest" as an insult, though this cycle will not be a perfect one.

The 2024 US election will probably push the stock market to a new high. Meanwhile, real inflation, which may not appear in the official statistics, will make the rich richer and the poor poorer.

JAPAN

Overall, I am optimistic. Japan appears to have successfully kept its head down and quietly farmed resources. Yen-denominated debt and the cheap yen may be very good investment targets.

I remain optimistic about Japan's auto industry. Its thinking is clear, and it has not been led astray by the new-energy wave.

One last ramble. Whenever I write a blog post, something interrupts me. Then I forget what I was trying to say. By the time I come back, there is a fault line in the middle of the thought. Hahahaha.