Will China See Lower GDP Growth in 2016?

Due to concerns over stock market gyrations and slower GDP growth, China has been a focus area for the markets over the past few weeks. This Market Insight report will analyze the expectations for economic growth in China for 2016 and the implications for the S&P 500. Specifically, the report will answer these questions:

+   Is China expected to report lower GDP growth in 2016?

+   Which S&P 500 companies have the highest revenue exposure to China?

+   Is the market punishing S&P 500 companies with higher revenue exposure to China? 

Will China Report Lower GDP Growth in 2016?

On Monday, the National Bureau of Statistics in China announced that (preliminary) real GDP growth for China for 2015 on a year-over-year basis was 6.9%. This marked the lowest annual GDP growth for China since 1990. Given the slower growth reported for 2015 relative to prior years, do analysts and economists believe that China will continue to see slower GDP growth in 2016?

The answer is yes. According to FactSet Economic Estimates, the median estimate for real GDP growth for China for 2016 on a year-over-year basis is 6.5% (based on estimates from 48 contributors). Looking ahead, analysts do not expect to see an increase in GDP growth for China over the next three years.

Which S&P 500 Companies with Highest Revenue Exposure to China?

Given the slower GDP growth projected for China over the next few years, what are the implications for earnings and revenues for companies in the S&P 500 index?

According to FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index), the average revenue exposure to China for an S&P 500 company is 4%, while the median revenue exposure to China for an S&P 500 company is 2%.

However, there are individual companies in the S&P 500 index with significant revenue exposure to China. The list below reflects the companies in the index with revenue exposure of 20% or more to China. Please note the values below (with the exception of the value for YUM! Brands) are estimates based on a FactSet proprietary algorithm.

*Values (except YUM) are estimates based on a FactSet proprietary algorithm.

Is the Market Punishing S&P 500 Companies with Higher China Exposure?

It is interesting to note that companies in the S&P 500 with higher exposure to China have recorded larger average and median price declines relative to the rest of the index.

For the entire S&P 500 index, the average price change for a stock since the start of the year (from December 31 through January 20) has been -10.1%. For the companies in the index with at least 10% revenue exposure to China, the average price change over this period has been -12.1%. For the companies (listed above) with at least 20% revenue exposure to China, the average price change over this period has been -13.0%. For the entire S&P 500 index, the median price change for a stock since the start of the year has been -9.3%. For the companies in the index with at least 10% revenue exposure to China, the median price change over this period has been -10.3%. For the companies (listed above) with at least 20% revenue exposure to China, the median price change over this period has been -10.1%.