Marie Hélène, partner since 2017 (Montréal, Québec)
English: Investing isn’t about seizing the day, but mapping out your future
This week in charts
U.S. equities
Balanced portfolios
U.S. government spending
Beauty products
It’s U.S. vs. China in an Increasingly Divided World Economy
China passed a significant milestone last fall: For the first time since its economic opening more than four decades ago, it traded more with developing countries than the U.S., Europe and Japan combined. It was one of the clearest signs yet that China and the West are going in different directions as tensions increase over trade, technology, security and other thorny issues.
For decades, the U.S. and other Western countries sought to make China both a partner and a customer in a single global economy led by the richest nations. Now trade and investment flows are settling into new patterns built around the two competing power centers.
In this increasingly divided world economy, Washington continues to raise the heat on China with investment curbs and export bans, while China reorients large parts of its economy away from the West toward the developing world.
Benefits for the U.S. and Europe include less reliance on Chinese supply chains and more jobs for Americans and Europeans that otherwise might go to China. But there are major risks, such as slower global growth—and many economists worry the costs for both the West and China will outweigh the advantages.
The International Monetary Fund said in October that fragmentation between China and the West was weighing on the world’s economic recovery this year. A more severe break between U.S.- and China-led blocs could cost the global economy as much as 7% of gross domestic product, worth trillions of dollars, IMF research suggests.
The economic split deprives companies of access to vital markets that drive profits and makes it harder to share technology and capital, depressing growth.
China, meanwhile, has invested big sums in Indonesian nickel factories to supply China’s EV industry. Tech firms Tencent and Alibaba have expanded across Asia, Africa and Latin America. Other Chinese companies have targeted renewable energy projects in Latin America and Africa.
Latin America, Africa and developing markets in Asia now account for 36% of overall Chinese trade, compared with 33% for its trade with the U.S., Europe and Japan, according to a Wall Street Journal analysis of Chinese customs data. As recently as last summer, that trio of advanced markets accounted for a larger share of Chinese trade.
Part of the explanation is Chinese factories are moving to countries such as Vietnam, India and Mexico to keep selling to U.S. customers while avoiding U.S. tariffs. But China’s growing expertise in affordable smartphones, cars and machinery that appeal to developing-world customers is also helping drive the shift at the expense of Western rivals.
As Chinese companies displace Western makers of tools and components for finished goods, the country’s use of imports in industrial production has declined by around 50% since its 2005 peak, even as exports have grown, according to data from CPB, a Dutch government agency that tracks global trade.
More Semiconductors, Less Housing: China’s New Economic Plan
China’s political leaders, under pressure to support the country’s fragile recovery, are slowly steering the economy on a new course. No longer able to rely on real estate and local debt to drive growth, they are instead investing more heavily in manufacturing and increasing borrowing by the central government.
For the first time since 2005, when comparable record keeping in China began, banks controlled by the state have started a sustained reduction in real estate lending, data released last week showed. Enormous sums are instead being channeled to manufacturers, particularly in fast-growing industries like electric cars and semiconductors.
There are risks to the approach. China has a chronic oversupply of factories, well more than it needs for its domestic market. A greater emphasis on manufacturing will probably lead to more exports, an increase that could antagonize China’s trading partners. China’s extra lending also poses a challenge for the West, which is trying to foster extra investment in some of the same industries through legislation like the Biden administration’s Inflation Reduction Act.
The shift to manufacturing loans underlines Beijing’s reluctance to bail out China’s debt-burdened property market. Construction and housing account for about a quarter of the economy and are now suffering from steep declines in prices, sales and investment.
China’s investment push might stir more growth in the coming months, partly offsetting troubles in the housing sector. But more central government borrowing, as a replacement for local borrowing, will do little to defuse the long-term drag on growth caused by accumulating debt.
“I don’t think there is a problem for short-term development, but we have to be concerned about medium and long-term development,” Ding Shuang, the chief economist for China at Standard Chartered, said at a recent forum of Chinese economists and finance experts in Guangzhou. “It’s fair to say real estate is not at a floor.”
Many economists have expressed concern that throwing more money at manufacturing might not fix the broader economy. The real estate sector is still decaying and is so large that offsetting its troubles with growth in industries like car manufacturing, which is 6 to 7 percent of economic output, won’t be easy.
How Work From Home Has Reshaped What Americans Buy
Early in the pandemic, unable to spend on things such as traveling and dining out, and with their finances buoyed by government relief, people bought goods with abandon. This played a role in the supply-chain snarls, the hefty price increases that beset the economy, and in retailers’ scramble to secure as much inventory as possible. As the economy gradually reopened there was a reversal that left many stores burdened with more than they needed.
Now, the rebound in services’ share of spending seems to have ended, and retailers’ inventory problems largely have been wrung out. Those selling furniture, electronics and appliances, for example, saw their inventory swell to as much as 1.75 times sales in December 2022, according to data from the Census Bureau. As of August, that ratio shrank back to 1.56, which is pretty much in line with prepandemic levels.
U.S. consumers are still devoting a lot of spending toward goods—a reshaping of the economy that, in addition to any far-reaching consequences it might have, suggests retailers’ 2023 holiday-season sales will be much higher than they might have imagined in 2019.
Figures from the Commerce Department’s Bureau of Economic Analysis show that U.S. consumers devoted a seasonally adjusted 33.3% of their spending to goods in September compared with an average of 31.4% in 2019. With goods prices moderating lately while services prices continue to climb, inflation doesn’t play much of a role in that. Indeed, adjusted for inflation spending on goods was 20.4% higher in September than the 2019 average, while services spending was just 7.6% higher.
A survey conducted by the Census Bureau during the latter half of last month showed that, among respondents who answered the question, 29% of U.S. households included someone who had teleworked at least once over the past seven days. That was almost exactly the same share as a year earlier—an indication of the staying power of the work-from-home revolution the pandemic set off.
People who work from home more don’t avail themselves of some services as much as they used to. They don’t spend as much money taking public transportation to work, for example, or at downtown lunch spots and after-work watering holes. If they used to have a gym membership near their office, maybe now they don’t. They buy stuff instead.
But a Goldman Sachs analysis shows that the stuff they buy is often a sort of substitution for the services they used to buy. If they aren’t buying a monthly bus pass, maybe they buy an office chair. If they aren’t spending money on a spin class near work, maybe they buy a bicycle.
This week’s fun finds
Valuation metrics
The return of the Hot Sauce reviewers
Originally the hottest sauce on Hot Ones, the crew reconvened to try The Last Dab. There are now two spicier versions, Apollo and Xperience, that will be tried in the coming weeks (assuming our mouths and stomachs can handle it…).
Reviews:
- “Really flavourful!”
- “Hints of mustard.”
- “It sneaks up on you and lingers…”
- “Why did you do that to me?”
Bored Ape NFT event attendees report ‘severe eye burn’
Several people have reported experiencing eye pain, vision problems, and sunburnt skin on Sunday after attending ApeFest, a Bored Ape Yacht Club NFT collection event in Hong Kong that ran from November 3rd-5th.
Some ApeFest attendees posted on X (formerly Twitter) after seeking medical attention, with one person reporting that they had been diagnosed with Photokeratitis — aka, “welder’s eye,” a condition caused by unprotected exposure to ultraviolet radiation — and another saying the issue was a result of UV from the stage lights, leading to speculation that the injuries were caused by improper lighting used at the event.
“I woke up at 04:00 and couldn’t see anymore,” said @CryptoJune777. “Had so much pain and my whole skin is burned. Needed to go to the hospital.”
Yuga Labs, the blockchain company behind the Bored Ape Yacht Club NFT project, says it’s aware of the situation and taking the reports seriously. “We are actively reaching out and in touch with those affected to better understand the root cause,” said Yuga Labs spokesperson Emily Kitts in a statement to The Verge. “Based on our estimates, the 15 people we’ve been in direct communication with so far represent less than one percent of the approximately 2,250 event attendees and staff at our Saturday night event.”
