India’s stock market topped a total valuation of $4 trillion for the first time on Tuesday this week—on the same day that Moody’s downgraded the outlook for China’s sovereign credit rating. Data released this week also shows that institutional investors have pulled out over $31 billion in stocks and bonds from the Chinese financial system this year, the worst outflow since 2001.
This caps a year during which the economic fortunes of the two biggest members of the BRICS grouping have diverged dramatically. India (the world’s fifth-biggest economy) appears to be reaping the benefits of pro-market and pro-business reforms, while the outlook for China (the world’s second-largest economy) is muddied by the increasingly tight control President Xi Jinping has over the country’s money.
India’s rise in the post-pandemic years has been remarkable. The Indian stock market was worth less than $1.5 trillion at the height of the pandemic in 2020; it is now narrowing the gap with Hong Kong, the world’s fourth-largest stock market. India is currently ranked as the fastest-growing major economy in the world, with the IMF forecasting growth of 6.3% this year. Interestingly, India has surpassed China as the world’s most populous country.
China, by contrast, has struggled to find its footing after the pandemic. Weak consumer spending, falling manufacturing output and concerns about a potential bursting of a real estate bubble have all weighed heavily on China this year. The Shanghai Composite Index and Hang Seng Index are down 7.3% and 17.6% in USD respectively for the year to date.
China and India have a complex relationship with each other as ‘frenemies’—they are key trading partners as well as geopolitical rivals. India appears to be surging right now because it has been able to be more agile after the pandemic than China’s command-and-control economy. With Prime Minister Narendra Modi heading into next year’s elections on a high, the outlook for 2024 is positive.
That’s not to say China can be counted out. China’s GDP growth is far from lacklustre, with forecasts of more than 5% for 2023. Its economy is still about five times larger, with a GDP of $17.7 trillion versus India’s GDP of $3.2 trillion. There are also signs that exports are picking up and that the prolonged slump in demand is nearing its end.
China and India combined now have a larger GDP than the European Union—so neither can be ignored. But there are reasons to be cautious about both: China’s inconsistent regulation and lack of transparent data – and India’s high levels of inequality and a slide to authoritarianism – are major risk factors. Nevertheless, as we move into 2024, China and India may both benefit from an increased appetite for risk should the Fed be successful in guiding the US to a soft landing.
“In the space of a decade, China and India have emerged as dramatic, dynamic competitors.”
– Peter Mandelson, former UK First Secretary of State
Global News
- Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative from stable, showing up deepening global concerns about the level of debt in the world’s second-largest economy. China’s use of fiscal stimulus to support local governments and its spiralling property downturn is posing risks to the nation’s economy, Moody’s said.
- India’s stock market value reached more than $4 trillion on Tuesday for the first time, which is a key milestone for the world’s fifth-biggest equity market as it rapidly narrows the gap with slumping Hong Kong. The market capitalisation of companies listed on India’s exchanges has risen by $1 trillion in less than three years. India is the fastest growing major economy as its gross domestic product jumped 7.6% in the three months to September from a year ago.
- The S&P 500 posted an average daily move of 0.3% in either direction last week — its tamest swings in half a year due to the market having lost some momentum toward the end of its second-best November since 1980. The Cboe Volatility Index, also known as the VIX, almost reached this year’s lowest levels last Friday after Fed Chair Jerome Powell gave his clearest signal yet that officials have finished raising interest rates.
- Germany’s benchmark stock index opened at an all-time high on Wednesday as investors’ growing confidence that interest rates will soon be cut outweighs worries that the country may be suffering a recession. The DAX, comprising the 40 most valuable companies in Europe’s biggest economy, has been climbing steadily since late October. At the end of that month, official estimates showed that inflation in the 20 countries using the euro had slowed sharply to its lowest level in more than two years.
- Economic commentator Natale Labia suggests that gold could be receiving more attention now because real yields are lower than their recent high, set at the end of October. A proxy of real yields, the US inflation-protected 10-year bond, is down around 50bps from those levels. Since the pandemic, gold has traded in a band between $1,600 and $2,000. It hit an all-time high on Monday at $2,111, up almost 14% in just two months.
- Oil declined to its lowest since June on Wednesday as momentum traders and lower market volumes worsened a plunge that has been driven by concerns that the market is oversupplied. There are signs of swelling global supplies, including estimates from ship-tracking firms, that American crude exports are nearing a record 6 million barrels a day. Brent is now below $75 a barrel.
- Google has launched its most ambitious effort yet to compete in the rapidly growing field of generative artificial intelligence, launching an AI model known as Gemini that’s designed to compete with the likes of OpenAI’s GPT models and supercharge everything from Google’s consumer apps to Android smartphones. Alphabet shares advanced almost 5.5% the day after the company’s announcement.
- Meta co-founder Mark Zuckerberg is selling stock for the first time in two years after the social media giant rapidly rebounded from a tumultuous 2022. The holding trust, as well as entities for his charitable and political giving, offloaded about 682,000 shares worth almost $185 million in November.
- Spotify will cut staff by 17% in the company’s steepest cuts this year, as part of an aggressive effort to shrink costs and drive profitability. The streaming audio giant is on pace to add more than 100 million users in 2023 — its biggest year yet. The news, delivered on Monday, sent shares up as much as 11% to $201.42.
- British American Tobacco will lose about $31.5 billion as it writes down the value of Camel, Pall Mall, and other US cigarette brands because the traditional cigarette market has no long-term future. There are also other issues, such as consumers going for cheaper brands due to inflation, as well as the increasing sales of illegal vapes.
- McDonald’s plans to have 50,000 locations globally by 2027, an increase of 9,000. This, it said, would be “the fastest period of growth in company history”. The company wants to better reflect market changes.
- As at Thursday’s close the S&P was down 1% for the week.
Local News
- Mavuso Msimang, deputy president of the African National Congress Veterans’ League, has quit the party after more than 60 years. Msimang stated, in his three-page resignation letter, that: “For several years now, the ANC has been wracked by endemic corruption, with devastating consequences on the governance of the country and the lives of poor people, of whom there continue to be so many.”
- Meanwhile, BusinessLIVE commentator, John Dludlu, has stated that business is more trusted than the ruling party to come to South Africa’s rescue and get the country back on track. He says – after almost 30 years of democracy – the country is at an inflection point in terms of whether South Africa can be set on the right socio-economic path.
- This comes as the ruling party has failed to pay the R102 million debt owed to Ezulwini Investments for election banners and other campaign material featured for 2019, plus interest and costs, leading to a writ of execution being served on the party, allowing the sheriff to attach goods to pay the debt.
- National and provincial government departments are blaming poor internal controls, lack of internal capacity and budget constraints for late and/or nonpayment of 117,158 invoices to service providers amounting to more than R11 billion. Government entities are meant to pay small business within 30 days of invoice. Failure to pay is indirectly stifling job creation because it hurts small business when it comes to cash flow.
- Eskom is expected to name Dan Marokane as its new CEO after an almost year-long search for a candidate, according to people familiar with the decision. Marokane, an engineer who was previously Eskom’s head of group capital and has served as the CEO of troubled sugar producer Tongaat since March (see below for the latest news on Tongaat). Eskom has had 14 leaders since 2007.
- Ahead of the festive season, a survey by the Bureau for Economic Research in partnership with FNB showed on Thursday that consumer confidence had slipped to minus 17 index points in the fourth quarter. This is the lowest festive-season consumer confidence reading in more than two decades.
- A compromise has been reached in terms of the two-pot requirement system. It is set to come into effect from 1 September 2024. The initial implementation date was set for 1 March 2024; however, the financial services industry objected that this would not give them sufficient time to put all the required administrative changes in place, while national Treasury suggested moving it to March the following year.
- Medical professionals and business organisations will petition President Cyril Ramaphosa to return the National Health Insurance (NHI) Bill to Parliament after it went through the National Council of Provinces on Wednesday afternoon. ANC MPs say the Bill is unstoppable. Eight of the nine provinces voted to approve the bill. The Western Cape voted against it.
- Tongaat has not paid R1.1 billion in levies owed to the industry and the sugar producer lost its court bid last week to have those levies suspended under the business rescue process. The Durban high court has postponed two applications by RCL Foods and the South African Sugar Association to interdict Tongaat Hulett’s business rescue vote until Wednesday. This means that the Tongaat business rescue vote, in which creditors will choose a buyer for the firm, cannot go ahead today, delaying an end to the 14-month business rescue process.
- At the time of writing, the rand was 1.5% weaker and the ALSI was 2.2% down for the week.
Sources: Dynasty, Daily Maverick, Reuters, BusinessLIVE, Bloomberg, CNN, TechCentral, TimesLIVE, News24, BizCom, etc.