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Today's big stories

Foreign firms in China have watched their profits take a nosedive this year
There are signs that the housing market is about to slow down, but could it suffer an all-out crash? – Read Now
A record number of companies are renting their first London office space

Unmade In China

What’s Going On Here?

Data out on Monday showed that the profits of foreign industrial firms based in China have tanked this year.

What Does This Mean?

China’s decision to lock down the economy has been weighing heavily on industrial companies, killing demand and slowing – if not altogether halting – production. And look, there are signs of a bounceback: profits in the sector were down “just” 6.5% in May from the same time last year – a notable improvement from April’s 8.5%. Trouble is, it looks like foreign firms will take a while to recover: their profits fell 16% between January and May from the same time last year, even as state-owned firms posted a 10% uptick. That’s probably because they don’t have access to the same resources and insider knowledge that their counterparts do, and can’t rely on big-money government contracts even when times are bleak.

Why Should I Care?

The bigger picture: Abandon ship.
No surprises, then, that more and more foreign firms are reassessing whether to keep investing in their Chinese businesses at all: survey data out last week showed that almost a quarter of European companies in the country are thinking of relocating their current or planned investments – the highest proportion in a decade (tweet this). And when you consider that the Chinese government isn’t wavering from its zero-tolerance Covid strategy, that proportion could be set to get even bigger.

For markets: China’s a bargain.
Foreign businesses might be thinking about leaving the country, but investors are heading back in: Chinese stocks are up nearly 30% from mid-March, thanks in large part to easing lockdowns and supportive government policies. And with a key valuation metric showing that Chinese stocks are currently much cheaper than those in the US, a growing list of investment managers and banks are thinking about piling even more into the country.

You might also like: China’s best-performing hedge fund is up 138% this year. Here’s its next play.

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Analyst Take

Are Home Prices About To Crash?

Stéphane Renevier, Analyst

Covid really brought out the best in the global housing market.

Homeowners with more cash to spend, lower mortgage rates to pay, and a newfound remote-working freedom lined up to move into bigger and better things.

But there are finally signs that its run of form is starting to lose its puff, as rising interest rates and slowing economic growth drag the market down.

So we can probably agree that a downturn seems to be on the cards. The question now is whether we’re likely to see a 2008-style crash.

That’s today’s Insight: is the housing market about to crash?

Read or listen to the Insight here

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