US fiscal policy and the Chinese stock market - Tilmann Galler analyzes the effects on the economy and investments.

US fiscal policy and the Chinese stock market - Tilmann Galler analyzes the effects on the economy and investments.

According to a report by extraetf.com,
The expansionary fiscal policy in the USA has a decisive influence on future economic growth. The US economy experienced a growth spurt in 2023 thanks to large economic stimulus programs and inflation-related increases in social welfare and health care spending. However, a budget deficit of 7.5 percent is unsustainable in the long term, especially with high interest rates. A less expansionary fiscal policy in the future would therefore mean lower economic growth.

In addition, interest rates are expected to remain high in the long term. According to market expectations, central banks should remain restrictive until wage growth in particular falls significantly lower. High wage settlements could give a new boost to inflation, especially in the USA, where the labor market is very tight. Energy could also become more prominent again as a factor driving inflation, as the price of oil has risen by almost 30 percent in the last few months due to OPEC's production cuts.

The Chinese stock market remains a disappointment of the year as overcapacity resulting from the construction boom of the last decade has led to a housing crisis. The Chinese state is unlikely to counteract this with a large economic stimulus package in order to achieve the growth target of five percent. Instead, monetary policy measures are expected to restore confidence in the private sector and boost the Chinese stock market.

Looking at asset classes, bonds can serve as a portfolio stabilizer, while stocks continue to be worthwhile, particularly outside of mega-caps and in the dividend space. However, there are some risks, particularly related to earnings revisions, which could lead to greater volatility in the stock markets. Still, J.P. Morgan Asset Management sees no immediate danger of a bear market and is relying on the resilience of stocks.

Based on the information mentioned, the future less expansionary fiscal policy in the USA is likely to lead to lower economic growth, while persistently high interest rates could influence financing costs. The housing crisis and subsequent monetary policy measures in China could affect the Chinese stock market. Bonds could offer more stability again, while stocks continue to be seen as a worthwhile investment option, especially outside of mega-caps and in the dividend sector. The potential risks related to earnings revisions could lead to higher volatility in the stock markets.