China’s long-awaited reopening after some three years of isolation has sparked optimism in the stock and bond markets. The end of its zero-Covid policy in early December 2022 is seen as a landmark shift — market commentators expect it to bring a fresh catalyst to China equities and fixed income.
In January 2023, consumer inflation in China accelerated as the economic recovery gathered pace and the Lunar New Year holiday drove demand.
Here is a list of commentaries from fund managers on their market outlook, as the world’s second-largest economy is set to stir from its Covid-19 slumber.
Why China could offer a rare source of growth in 2023
Abrdn (20 Jan 2023)
“Ultimately, we would highlight four key reasons for investors to consider an allocation to Chinese equities now — not least because the market has been so depressed until the past few months that any pick-up in sentiment will likely help it spring back like a rubber band.
- China is on the opposite side of the economic cycle to many developed markets, with benign inflation enabling Chinese policymakers to retain an accommodative monetary and fiscal stance…
- Valuations are appealing. China’s A-share market is trading at around a 35% discount to its 15-year average on a price-book basis…
- Chinese equities enjoy low correlation with global equities. … An allocation to Chinese stocks could offer diversification benefits at a time when advanced economies are locked in a policy-tightening cycle.
- The Chinese government is committed to fostering a culture of innovation to drive economic growth. … Already it has a large global market share in the manufacturing and production of solar, battery and wind power.”
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What could China’s reopening mean for markets?
Neuberger Berman (12 Jan 2023)
“Sectors benefiting from this recovery could include transportation (e.g. airlines), retail (e.g. restaurants), outbound tourism (e.g. Macau gaming and Hong Kong retailers), consumer discretionary (e.g. apparels), and healthcare (e.g. medical services). Meanwhile, fiscal and monetary policies should remain largely growth supportive, especially in the absence of any meaningful inflationary pressures.”
“In fixed income, we are especially enthusiastic about the prospects of convertible and property sector bonds. Convertible bonds participate in equity upside with limited downside risks. On the property front, a significant portion of China’s high-yield property bond universe is trading at distressed levels.”
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China outlook: The faster the reopening, the earlier the recovery
PIMCO (8 Feb 2023)
“We are constructive on China’s recovery in 2023 because its economic cycles tend to be policy-driven … China’s economic agenda will be focused on one thing this year: growth. Key policy focus areas include expanding domestic consumption, attracting and deploying foreign capital, stabilising the property market, and revamping the tech sector.”
“We believe macroeconomic policy will likely remain supportive in the first half of the year and then begin to normalise. We expect the government will continue to relax regulations in sectors such as housing, education, tech, and gaming in order to stabilise growth.”
“The export sector, which was a key growth driver for China during the pandemic, poses a potential headwind. Exports have seen a sharp decline in some of the major developed markets, as consumer demand switches from manufactured goods to services.”
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