We have been positive on China since the beginning of 2023 when we published our piece – China Market Outlook : From “Uninvestable” to “Unavoidable”. After the conclusion of the annual China’s National People’s Congress (NPC), we summarised the key takeaways that reinforced our positive views on China. This article updates our bullish medium-to-long-term view on China, as recent macro data points have been very encouraging in that regard.
Recent first quarter (1Q) Gross Domestic Product (GDP) print was a solid beat against market expectations (Bloomberg consensus at 4%), expanding 4.5% year-on-year (YoY). To refresh, the government targets a growth rate of “around 5%” for 2023 as announced during the NPC. This data suggests a strong post-reopening and recovery in China, as we had expected, driven by several factors below.
On the activity front, retail sales leaped by +10.6% YoY in March, from +3.5% in January-February, on the back of meaningful growth in restaurant sales growth (+26.3% YoY in March, from +9.2% in January-February) and a lower base (recall Covid-19 restrictions in March 2022). The services industry output index rose by +9.2% (from +5.5% in January-February). Another notable reading includes stronger than expected export numbers, due to government’s focus to steady foreign investments and exports, as well as resilience of developed market (DM) economies.
Importantly, we are seeing green shoots in the property sector, as new home prices in March 2023 rose at the fastest pace in 21 months. The Chinese government has eased its crackdown on the sector and rolled out a series of measures to resuscitate the market since November 2022. While the liquidity issues for the property sector are still not over and recovery is likely to be uneven, we are hopeful that this reflects a slow improving outlook.
…BUT STILL A MIXED BAG
Industrial Production and Fixed Asset Investment (FAI) came in softer than expected. Labour readings also remain mixed, suggesting a potential structural unemployment issue.
While we acknowledge that economic environment may remain challenging, especially for small to mid-sized enterprises, the government has shown commitment and support towards bolstering business confidence and domestic demand. Indeed, China and Hong Kong equity markets were mixed upon the release of the data, highlighting investors’ overall cautious sentiment. With that said, we remain optimistic that the momentum in China will gather pace through the rest of 2023. Furthermore, relative to its developed market peers in terms of growth and valuations, we see China as attractive on a risk-reward basis, and reiterate our positive view on the market.
Footnote: All data are sourced from Lion Global Investors and Bloomberg as at 18 April 2023 unless otherwise stated.
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