China’s economy has really struggled in recent months. In July, China’s exports declined 14.5% and imports dropped 12.4%. That marked the worst decline in exports since February 2020.
Complicating matters further, as of July, China’s official Purchasing Manager Index (PMI) had declined four-straight months to its lowest level in a year.
But now, its economic woes are starting to spread to other countries and impacting overall global GDP growth.
In today’s Market 360, we’ll discuss what’s going on with China and what it means for the global economy. I’ll explain why the U.S. is the oasis around the world… and how to protect your portfolio.
The China Conundrum
Consider this: China’s exports declined 8.8% in August compared to the same month a year ago. Imports have also slipped, falling 7.3% in August compared to the same month a year ago.
One country that’s feeling the fallout from China’s drop in exports and imports is South Korea.
South Korea is now in the midst of its longest manufacturing slowdown in 50 years. Japan and Taiwan have also experienced a manufacturing slowdown. Malaysia, Thailand and Vietnam have all experienced slower economic growth due to China.
Australia is the one outlier, as China lifted the tariffs on coal, barley, lobsters and other goods imported from Australia.
Still, global trade is slowing down, and global free trade is breaking down.
Germany’s factory orders plunged 11.7% in July, which was far worse than economists’ estimates for a 4.3% decline. This is the biggest drop in factory orders in more than three years (since April 2020).
Considering trade tensions and China’s exports/imports decline, as well as ongoing central bank policies and inflation, the International Monetary Fund (IMF) expects global GDP growth of 3.0% in 2023 and 2024, down from 3.5% in 2022.
But these forecasts could be lowered, as the manufacturing recession in Italy and Germany worsened in the third quarter, several countries remain characterized by negative GDP growth, and China’s economy continues to hit the brakes.
Meanwhile, the U.S.’s exports and imports are improving…
U.S.’s Imports and Exports on the Rise
The Commerce Department reported last week that the U.S. trade deficit rose to $65.0 billion in July, up from a revised $63.7 billion in June. Exports rose 1.6% to $251.7 billion, while imports rose 1.7% to $316.7 billion in July. The trade deficit has declined 21.4% this year due largely to higher energy prices boosting the value of U.S. exports.
Trade has a big impact on GDP growth, so a significant portion of the Atlanta Fed’s third-quarter GDP estimate is attributable to rising energy exports. It currently expects the U.S. economy to grow at a 5.6% annual pace in the third quarter.
Now, the U.S. still has a weak manufacturing sector, and the looming threat of a United Auto Workers (UAW) strike could also hurt economic growth. Consumer and wholesale inflation is also running a little hot (we’ll talk more about the latest inflation reports in tomorrow’s Market 360, so stay tuned!).
The Best Defense for Your Portfolios During Trying Economic Times
Overall, amidst the chaos of the world and trying economic times, our best defense remains a strong offense of fundamentally superior stocks.
As an example, the last two months represented my strongest relative performance for my Growth Investor High-Growth Investments Buy List compared to the S&P 500 since last October and November. The strength of my overall Buy List is a direct representation of owning stocks across a variety of industries – artificial intelligence (AI), energy, consumer, solar, homebuilders and building supply companies.
I should add that my Growth Investor Buy List companies remain characterized by 152.3% annual earnings growth. As a result, these stocks should attract their fair share of investors’ attention, especially during quarter-end window dressing later this month. This is when institutional investors make their clients’ portfolios “pretty” by scooping up shares of fundamentally superior stocks.
The bottom line: I expect investors to continue to flock to our stocks in the coming weeks and outperform even if the slowdown in China’s economy or global GDP weighs on the stock market.
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