Shrinking Population

Weekly Briefs
23 Jan 2023
7 min read
Shrinking Population

Arguably one of the biggest data releases last week was China’s Q4 GDP figures, which came in better than expected. That’s turning several investment banks bullish on Asian stocks. Goldman Sachs also highlighted China’s strength as one of their reasons behind their bullish call on commodities this year. Data out the same day, however, showed China’s population shrank for the first time in six decades, which won’t be good for the country’s economic growth in the future. The Bank of Japan, meanwhile, defied market pressure and held firm on its yield-curve control program. Over in the UK, inflation eased for the second consecutive month but is still hovering close to a four-decade high. Finally, the implosion of FTX claimed another crypto casualty. Find out more in this week’s review.


New data out on Tuesday showed China’s economic output was flat in the fourth quarter compared to the previous one, but grew 2.9% on a year-on-year basis, topping economist forecasts for a 1.6% increase. Still, the fourth-quarter figures mean China’s economy grew by just 3% in 2022 – significantly below the government’s official target of 5.5%. What’s more, other than in 2020 when GDP expanded by just 2.2% due to the pandemic, last year’s growth was the weakest since 1976, underscoring the heavy costs of the government’s longstanding zero-Covid strategy before it was abruptly abandoned last month.

China records second-lowest GDP growth in more than 40 years. Source: FT

Still, economists see a recovery in the coming months once the current Covid wave passes, predicting growth of close to 5% this year. The government has signaled that it’s prioritizing economic growth in 2023, with a key focus on boosting domestic consumption and investment. More economy-boosting measures like fiscal and monetary stimulus could be on the cards too, while the government also recently took steps to ease its regulatory crackdown on the tech sector and reverse some of the restrictions on the real estate market.

Still, the rebound won’t be straightforward: consumer confidence is near record lows, the property market remains in the doldrums, exports are slumping as the global economy slows, and, according to new data out last week, the country’s population shrank for the first time in six decades. The country had 1.41 billion people at the end of last year, 850,000 fewer than at the end of 2021. Deaths of 10.41 million outnumbered the 9.56 million babies born in 2022, which was the lowest level of births since at least 1950, despite efforts by the government to encourage families to have more children.

China's population shrank last year as births have fallen again and deaths keep rising as the nation ages. Source: Bloomberg

A shrinking population will have major long-term repercussions for China’s labor market, demand for housing and goods, the country’s pension system, and more. The data also showed that 62% of the population were of working age, which China defines as people aged 16 to 59. That’s down from around 70% a decade ago, highlighting the challenges the country faces as its population ages. Put simply, China can no longer rely on demographic trends as a structural driver for economic growth going forward, but it’ll have to depend more on productivity growth (economic output per capita).

Moving on, the Bank of Japan (BoJ) last week decided against making more adjustments to its yield-curve control program in a move that prompted sharp slides in the yen and Japanese bond yields. Japanese stocks, meanwhile, soared as a weaker yen is seen as a positive for firms’ overseas earnings. There was intense market speculation of policy change leading up to the announcement after the central bank surprised markets last month, but the BoJ left interest rates unchanged at minus 0.1% and the target for 10-year yields under its curve-control program the same at around 0%. If anything, the central bank doubled down on the latter by saying that it would continue large-scale bond buying and increase them on a flexible basis if needed.

The yen initially tumbled more than 2% after the BoJ left its yield-curve control program unchanged. Source: Bloomberg

Outside of Asia, new data out last week showed UK inflation eased for the second consecutive month. The annual inflation rate was 10.5% in December – down from 10.7% the month before and the 41-year high of 11.1% in October. The slowdown, which was in-line with economists’ expectations, came on the back of lower fuel prices. Still, inflation remains five times higher than the Bank of England’s 2% target, and economists don’t expect the central bank to ease off hiking interest rates anytime soon. Underscoring concerns about persistent price pressures, core inflation – which strips out volatile food, energy, alcohol, and tobacco components – remained unchanged at 6.3% (economists had expected the rate to decline to 6.2%).

Inflation may have peaked but more interest rate increases are coming. Source: Bloomberg


Several investment banks are turning increasingly bullish on Asian stocks on the back of China’s resumption to pro-growth policies in late 2022 and the country’s better-than-expected fourth-quarter GDP report last week. After all, the resumption of activity in the world’s second-biggest economy could unleash over $836 billion of excess savings that Chinese households have built up over the last three years, according to estimates by JPMorgan Chase.

More specifically, Chinese shares may beat their global peers in 2023, with Morgan Stanley and Goldman Sachs forecasting the MSCI China Index will gain roughly 10%, while Citi Global Wealth Investments sees about 20% upside. Others see Asian stocks extending gains, even after a key benchmark entered a bull market. Exporters such as South Korea and Taiwan will benefit, as well as Southeast Asian economies that rely on Chinese tourists, notably Thailand. Deutsche Bank, for example, is predicting a 20% gain for the MSCI Asia Pacific Index in 2023. Lastly, BNP Paribas predicts the MSCI Emerging Markets Index will rise 15% this year.

Chinese stocks are lifting emerging markets equities amid high correlation between the two. Source: Bloomberg


Goldman Sachs is really bullish on commodities. In a presentation last Monday, Jeff Currie (the head of commodities research at the investment bank) said that commodities have the strongest outlook of any asset class in 2023, with a perfect macroeconomic setup and critically low inventories for almost every key raw material. What’s more, demand in China is starting to rebound at a time when there’s insufficient investment in supply. Currie sees parallels with the record run-up in commodity prices from 2007 to 2008. The only exception, he said, is European natural gas, where inventories look sufficient to get through this year.

After a massive rally from mid-2020 to mid-2022, the Bloomberg Commodity Index has lost some steam – but Goldman Sachs is predicting another strong rally for 2023. Source: Bloomberg

Currie’s reasoning was partially vindicated two days later, when the International Energy Agency said in its latest outlook that global oil demand is set to rise to an all-time high of 101.7 million barrels a day in 2023. That’s down to China relaxing its Covid restrictions in a move that may push oil prices higher in the second half of the year, according to the agency. 

This week

Another week, another bankruptcy: crypto broker and lender Genesis filed for bankruptcy last week, ending months of wrangling with creditors. The firm’s troubles began soon after the collapse of FTX, prompting Genesis to halt customer withdrawals in November citing “unprecedented market turmoil” and liquidity issues. What’s more, Genesis parked some of its own funds with FTX. It has since been scrambling unsuccessfully to find fresh funding to pay back the more than $3 billion it owes creditors… 

  • Monday: Eurozone consumer confidence.
  • Tuesday: January PMIs for the US, UK, eurozone, and Japan. Earnings: Johnson & Johnson, Microsoft.
  • Wednesday: Bank of Canada interest rate announcement. Earnings: IBM, Tesla, Boeing.
  • Thursday: US Q4 GDP. Earnings: Blackstone, Mastercard, Visa, Intel.
  • Friday: Earnings: American Express.
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The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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