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If a stock market is a mirror of a society’s state of mind, then the US is feeling exuberant right now. But in China, it is all about trepidation. Investors there are worried the government is going to mess things up.
Both economies face the same set of problems: Supply chain disruptions, inflation pressures, the threat of rising interest rates. But the market dynamics couldn’t be more different. A new electric vehicle initiative from car rental firm Hertz Global Holdings Inc, which exited bankruptcy only a few months ago, added about $300 billion of market cap to Tesla Inc. That’s more than the entire worth of China’s biggest commercial bank, Industrial & Commercial Bank of China Ltd.
As Americans enthusiastically gobble up the new EV unicorns, the Chinese are busy confronting something they left behind four decades earlier: Rationing. An official statement urging local authorities to ensure there was enough food this winter prompted a social media frenzy, with people linking it to a possible war with Taiwan. In the last month, tensions between China and the US increased over the island. While it’s fairly routine for the government to stockpile ahead of the winter holidays, markets are not taking anything at face value. Investors sold down big tech names, including smartphone maker Xiaomi Corp, fearing that rising geopolitical tension will play havoc with the way they do business. We’ve seen the damage US sanctions have done to Huawei Technologies Co’s handset sales. Traders are instead putting their money into staples, such as soy sauce maker Foshan Haitan Flavoring & Food Co, whose $78 billion market cap is now higher than Xiaomi’s. There’s no war yet, but markets are already defensive, playing like there is one. These days, Chinese investors talk obsessively about stagflation, economic sanctions — and wartime survival skills.
State media is now rushing to quiet online speculation of a possible imminent conflict with Taiwan, but they are simply not powerful enough to alter the bearish tone in the marketplace.
Unlike the US, China’s stagflation problem is partly self-inflicted by the government’s own policies. Single-mindedly pursuing a zero-Covid strategy, the authorities arbitrarily seal off entertainment parks, quarantine thousands of tourists and lock down cities for months at
a time.
—Bloomberg