2024, prices, house prices, and opportunities to make money
Finally, we ushered in 2024.
2023 is the first year after the epidemic is released, and it is also a year for the economy to resume growth, however, for most people, the experience is not good, and the sense of gain is not strong.
The just-held Central Economic Work Conference proposed to "pay attention to effectiveness and enhance the sense of gain in the evaluation of policy effects", according to which linear extrapolation, we can expect more sense of gain in 2024 and better share the fruits of economic recovery.
There are many reasons why the sense of gain in 2023 is not strong:
First, negative price growth has led to a slower growth rate in nominal GDP than in real terms. The GDP growth data we see on a daily basis excludes the impact of price factors to reflect the growth of physical workload. This statistic makes sense, otherwise Argentina will soon be able to catch up with the United States with super inflation GDP. But our experience of economic growth is more related to nominal GDP, and when there is a large deviation between nominal GDP and real GDP growth, it can lead to a deviation between the sense of gain and the GDP reading.
From the perspective of GDP reading, the economic growth rate in 2023 will rise, but from the perspective of nominal GDP, the economic growth rate in 2023 will slow down due to negative price growth. In the first three quarters of 2023, the GDP reading was 5.2%, which is a reassuring figure, but the nominal GDP growth rate was only 4.42%, a significant decline from 6.14% in the same period last year.
In fact, since Q1 2021, nominal GDP growth has been declining quarter by quarter, and each quarter is getting lower than the next. Since then, people's sense of economic growth has been declining. This also explains why the epidemic is over in 2023, so why does it feel even worse.
Second, the negative growth of exports, domestic demand is difficult to pick the main beam. As a major manufacturing country, the added value of the manufacturing industry has accounted for more than 29% of the global market in recent years. The logic behind the three-year epidemic is that the mainland's manufacturing share has increased for three years, and the logic behind it is that the mainland's dynamic zero-COVID supply has been greatly disturbed, and the supply of other countries has been greatly disturbed, and at the same time, demand has been stimulated through fiscal efforts. The growth of global demand has digested the supply force of the mainland, so although domestic demand is limited during the epidemic, external demand is strong, and under the effect of foreign exchange earnings, domestic enterprises have a strong ability to stabilize employment, and residents have a sense of security.
Entering 2023, the global manufacturing capacity will gradually recover, the mainland's supply advantage will decline, and at the same time, limited by high inflation, the global demand for goods will decline, and the result is that the mainland's exports will begin to show negative growth, with a year-on-year increase of -5.2% from January to November.
If domestic demand can recover as expected by the market, and domestic demand relays external demand, then 2023 will have a completely different performance. The problem is that due to the continuous downturn in real estate and the scarring effect of the epidemic, consumers' willingness to spend is not high, and the recovery of domestic demand is weak. In terms of the performance of the company, the average growth rate of the company in the first 11 months of 2023 is only 3.49%, which cannot support the huge supply of manufacturing capacity.
The Central Economic Work Conference held in December clearly mentioned the problem of "insufficient effective demand and overcapacity in some industries" when elaborating on the challenges facing economic development. Since the supply-side reforms in 2015, the term "overcapacity" has become less and less common in official documents. This repetition reflects the tremendous pressure of expanding domestic demand and matching supply and demand.
When it is difficult for internal and external demand to digest supply, it will force the supply side to reduce prices and inventory, and the price will roll in, resulting in a decline in corporate profitability, unstable employment confidence of residents, and low willingness to consume, forming a vicious circle.
Third, housing prices and stock prices have fallen, and the wealth effect has shrunk. According to CICC's estimates, as of the end of 2021, mainland residents had invested about 39 trillion yuan in real estate. According to this calculation, for every 10% decline in housing prices, investment real estate wealth will shrink by 3.9 trillion yuan. At the end of 2022, the net value of mainland equity + hybrid funds will be 7.48 trillion yuan, and the average increase of partial stock hybrid funds in 2023 will be -14%, corresponding to a shrinkage of 1.05 trillion yuan in equity fund wealth.
In addition, there is also the loss of wealth caused by the decline in deposit interest rates and the explosion of trust products, which will lead to a decline in the sense of gain of the residential sector.
Looking forward to 2024, whether the above problems can be alleviated will determine the feelings and experiences of each and every one of us.
Let's start with the price issue. From the Wind consensus forecast, the market is more optimistic about the price performance in 2024, with PPI expected to increase by 0.28% year-on-year in 2024 (-2.99% in 2023) and CPI expected to increase by 1.18% year-on-year (0.29% in 2023). The overall positive price index means that the nominal GDP growth rate will be higher than the GDP reading, and everyone's sense of gain will also be significantly restored.
CPI is easier to understand. The CPI in 2023 is mainly dragged down by pork prices. The average annual average price of live pigs in 22 provinces was 15.26 yuan/kg, down 19.22% year-on-year, dragging down the CPI growth rate by 0.35 percentage points. Considering that the current pig price has been lower than the cost price of breeding enterprises, and the sows that can reproduce have entered the demobilization range, the price of live pigs in 2024 is likely to stop falling and stabilize. Even if it cannot rebound, the year-on-year decline will be significantly narrowed, and the drag on CPI will be greatly weakened. In addition, the gradual recovery of consumption also has a supportive effect on the CPI as a whole.
The PPI trend is related to the inventory cycle of industrial enterprises. At present, the mainland manufacturing industry is nearing the end of destocking, and there is a high probability that it will enter the replenishment cycle in 2024, driving the PPI to strengthen.
In terms of exports, Wind's consensus forecast shows that the mainland's export growth is expected to return to positive in 2024, with a year-on-year increase of 1.78%. In terms of reasons, Europe and the United States are both at the bottom of the manufacturing inventory cycle, and there is a high probability that they will enter the replenishment cycle in 2024, which will support mainland exports.
However, 2024 is an election year in the United States, and geopolitical issues may continue to ferment, and at the same time, the United States is facing more obvious recessionary pressures, and the consumption power of the American people has been impaired, and it is uncertain to what extent it can support mainland exports.
From January to October 2023, the cumulative export value of the mainland was 3.08 trillion yuan, an increase of 36.1% over the same period in 2019. It shows that mainland exports are still enjoying the dividends of relative supply advantage during the epidemic to some extent, and based on the perspective of mean reversion, there is a high probability that they will still face downward adjustment pressure in the short term.
In short, there is no need to be too pessimistic about exports in 2024, but it is difficult to be optimistic.
In terms of the wealth effect. There is a high probability that housing prices will still have to be grinded to the bottom, and equity investment is expected to bottom out, but the flexibility is also limited. On the whole, the wealth effect in 2024 is no longer a drag on confidence, but it is difficult to say that it will become a pull.
The short-term trend in house prices depends on the structure of supply and demand. Benefiting from the strong promotion of the policy of guaranteeing the delivery of real estate, the area of commercial housing for sale in mainland China (completed but not sold) is currently at a stage high; from the perspective of second-hand housing, the demand for investment has disappeared, and the sell-off of investment housing has increased. The supply of new and second-hand houses has increased, and potential buyers still tend to wait and see, and the supply exceeds demand, and it is difficult for real estate prices to stabilize in the short term.
In terms of equity investment, the Shanghai Composite Index closed at 2975 points, and there is no room for downward movement, and it is a high probability event to achieve positive returns in 2024. However, from the perspective of the internal and external environment, the probability of ushering in a big bull market in 2024 is very low, and the slope of the rise of A-shares will not be too high, and the money-making effect is limited.
On the whole, housing prices are declining, equity investment is rising, and the overall wealth effect is still difficult to say that it has become a driving item.
For 2024, we are likely to be able to get rid of the tension and oppression caused by the decline in growth rate, and we can take a break and take a breath at the emotional level, and our confidence will be slightly restored, but we will still hover at the bottom.
After a year of gathering momentum and waiting, 2025 will be more worth looking forward to.
[Note: The market is risky, and investment needs to be cautious.] In any case, the information or opinions expressed herein are for an exchange of views only and do not constitute investment advice to any person. 】
This article was originally written by the official account "Xue Hongyan Whisper", and the author is Xue Hongyan, vice president of Xingtu Financial Research Institute