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Xi’ing Red

Investment Insights: Market Update
HIGHLIGHTS:
  • Stocks have regained ground since the middle of last week, with the S&P 500 returning 4.0 percent.
  • China’s week-long Communist Party Congress is currently underway and marks an important event for the country.
  • President Xi Jinping is very likely to retain his current top three national positions, and may be moving to further centralize power.
  • Investors are hoping China will return to being a powerhouse for global growth despite delaying its GDP print.

Stocks regained ground since the middle of last week, with the S&P 500 gaining 4.0 percent as opportunistic investors evidently identified a buying point and technical traders pointed to oversold signals. Some of the current enthusiasm is a result of the change of heart in London, where leaders pulled a platform of potentially destructive economic and tax policies off the table. The reversal has spelled out political troubles for the reigning party and only adds to criticisms of the newly elected UK Prime Minister, Liz Truss. Further abroad in Beijing, it is unclear exactly how markets might react to China’s week-long Communist Party Congress, which is currently underway.

The theme for this congress seems to be stability rather than change, which shouldn’t surprise most observers. Seeking to cement his roles as the head of both the party and the nation, President Xi Jinping will likely be elected for a third five-year term and also continue to hold his seat as the chairman of the nation’s armed forces. The selections will likely push forward the party’s agenda of centralizing power and expansion of China’s economic, social, political, and military stature. In recent years, this has required a delicate balancing act, but this congress gives no clear indication that significant—let alone positive—new steps will be taken. One recent landmark policy has been the zero-COVID policy, which imposed harsh restrictions on the population and placed a significant burden on the economy. While the policy’s success in limiting the pandemic death toll is questionable, critics argue that most of the world has resumed relative normalcy and that the policy has served its purpose. However, on the opening day of the congress, Xi commented there would be no immediate changes to the restrictions despite the potential positive effects from its large population fully returning to work and consuming goods and services again. Similarly, potential changes to the outlook regarding China’s hardline stance with Taiwan, the troubled Chinese real estate sector, an awkward “neutrality” concerning the Russia-Ukraine War, North Korea’s nuclear ambitions, and a host of other topics of concern to the rest of the world remain muted—if mentioned at all.

Despite the absence of a significant agenda, investors will closely follow the selection as any changes to China’s key leadership will be telling of the overall direction of the world’s second-largest economy. However, the decision by authorities to delay economic data, including the country’s most recent GDP print, may not bode well. If these statistics reveal a deepening weakness within the economy, it would likely dash investor hopes for China’s return to a force for global growth.

Market Dashboard

Financial market data for various time periods covering global asset classes. Data as of October 18, 2022.

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Contributors

[Contributors Section]
Cyrus Charna
Investment Strategy Officer
Ben Baier
Lead Investment Officer
Wade Balliet
, CFA
Chief Investment Adviser