China becomes attractive again | Paper Jam News

Liu He, China’s fifth vice premier – the last in the protocol order – gave an update on the Chinese economy at the World Economic Forum in Davos. He said the country’s economy, which reached 3 percent growth in 2022, will see significant improvement this year and return to its normal trend. He also reiterated the country’s support for economic multilateralism.

His speech resonated with many global business leaders and economists who see China as the growth driver needed to avoid the recession everyone predicts.

Will the reopening of China be the major event of 2023 and a key driver of growth? This is the question that many analysts ask themselves.

Rally in the equity markets

For Catherine Yeung, investment director Asia-Pacific equities at Fidelity International, the political takeover of recent weeks has cooled the population. However, in the face of increased government control, she believes that the agility of Chinese entrepreneurs will carry the economy.

Focusing on the markets, she finds that while Middle Kingdom equities have been lagging for most of 2022, there has been a significant rally since the end of the year. “Over one year, the fall is 21.8%; over 6 months, it is 11.9% and over three months, we have an increase of 13.5%.”

A rebound that she attributes to the good performance of an economy which is “one cycle ahead of the rest of the world”. Inflation is stable at 2.8%; the unemployment rate is at 5.7% – “a level that is all the more remarkable as the zero-Covid policy has weighed on the confidence of employers” –; and Central Bank interest rates remain at 2%. As for the ratio of land ownership debt to GDP, it reached 62.1%. For comparison, it is 89.8% in the UK and 76% in the US.

Consumption and savings to the aid of growth

After a few years of gloom, does 2023 mark a stock market boom? Catherine Yeung thinks so. “Earnings forecasts have rebounded from an extremely bearish level,” she notes. And where will market growth come from? For her, if growth is the political objective, “consumption will be the means”.

The first spring in fact. The outlook for consumption is primarily driven by a return in consumer confidence. “A confidence which, at 49%, is on average three times higher than what can be measured in developed countries”. Chinese households also have significant cash reserves.

Catherine Yeung dismisses the scenario of a real estate crisis which could curb consumption. For her, the sector is in the process of reducing its leverage effect and the public authorities are adopting an accommodating policy to limit the risk. Much remains to be done, but the situation remains under control. She notes that consumption habits are changing and that “local” brands are gaining market share.

The second source of market growth will be the development of a class of domestic investors attracted by “professionally managed products”. The emergence of a “private” pension pillar will offer many investment opportunities.

This article is from the Paperjam + Delano Finance newsletter, the weekly meeting to follow financial news in Luxembourg. You can subscribe by following this link.

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