Economics

Market Update 2023 – China: From “Uninvestable” to “Unavoidable”

01 Mar, 2023

What A Ride!

Since its highs in February 2021, the Chinese market corrected 63% to its trough in October 2022. After its faster-than-anticipated reopening news late last year, the market has rallied hard, now up 38% since its bottom (as at 22 February 2023)1  Investors’ sentiment as well as positioning have turned positive meaningfully, in contrast to the doom-and-gloom scenario painted just last year, when some market participants dubbed the market as “uninvestable”. To give some context, China’s push for “common prosperity” to bridge the wealth gap had led to a slew of multi-pronged regulatory and antitrust campaigns. Various sectors saw a plunge in share prices under the crackdown – for example, during March 2022, the Chinese technology firms lost almost 70% of their market value since their 2021 highs. In addition to an economic slowdown and growing tensions with the West, the Chinese market was thrown into a period of huge turbulence and uncertainty.

The narrative in 2023 today is remarkably different. Should one look at the trajectory of recovery in China, we believe it is now indeed “unavoidable” to stay invested In China. In this article, we highlight three key points why China has shifted from “uninvestable” to “unavoidable”, as this global superpower rises once again.

1All data are sourced from Lion Global Investors and Bloomberg as at 22 February 2023 unless otherwise stated.

1.U-Turn in Zero Covid Policy

First, the reversal in China’s covid policy has been unquestionably swift once it was ignited in mid-November last year. After a long and strict pursuit of a zero-covid policy, in a span of mere seven weeks, the country has moved from zero-covid to zero-quarantine. Mobility indicators – such as subway ridership in China’s key cities, to flight volumes as well as box office sales – are showing that the economy are coming back to life. Similarly, high frequency data over the Chinese New Year holiday and January PMI indicates that China’s macro recovery looks to be on track. Indeed, relaxation of restrictions has brought a huge wave of relief to markets, as the second largest global economy surge “online” again.

 

Fig.1 Commuters Back to Work

 

Source: Reuters, “China’s on the move again, economic outlook brightens”, 13 January 2023

 

Fig.2 Taking to the Skies Again

Source: Reuters, “China’s on the move again, economic outlook brightens”, 13 January 2023

 

Fig.3 Back to the Movies

Source: Reuters, “China’s on the move again, economic outlook brightens”, 13 January 2023

 

2. Pro-Growth Policies Put in Place

Second, aside from moving away from the zero-covid policy, the government has also introduced a series of pro-growth policies to rejuvenate its economy. Regulatory risk is receding surely and quickly. There have been sweeping measures unveiled to stabilize and support the struggling property sector, including credit support for debt-ridden developers and assistance for certain categories of homebuyers. After a period of relentless scrutiny, regulatory crackdown on Big Tech names seems to be seeing the light at the end of the tunnel as well. While arguably the Big Tech names may no longer be secular growth stocks, the Chinese internet sector is still viewed as a proxy to the country’s macro recovery. As the economy regains its footing, names like Alibaba, JD.com, Tencent and the likes will ride alongside the wave.

3. Spillover Growth Effects to Rest of the World

Third, the knock-on effects of China’s reopening cannot be ignored. We expect a significant global demand lift that could push the risk of global recession to 2H2023 or early 2024. We also expect its growth to spillover and set off a growth wave in Asia. One good example to illustrate is our expectation of how revenge travel could be back with vengeance – we are positive on domestic tourism as well as outbound travel. One of the key beneficiaries will be Thailand whose economy is very dependent on tourism, with a significant portion of their visitors from China. Hospitality-related names are expected to see a surge in top-line, while the operating leverage effect will kick in. Zooming with a micro lens, we are also of the view that tech demand will grow, especially for smartphones. China smartphone demand has been depressed for a number of years now, partly due to the fact that smartphone penetration is already very high in China. Now that smartphone inventory levels have come off and replacement cycle is long overdue, we are expected to see a recovery in smartphone supply chain demand as China reopens up.

4. Wild Cards

That said, we are mindful of the key risks on the horizon: 1) growing geopolitical tensions; 2) resurgent inflation; 3) policy changes.

Bottomline, all eyes on China.

 

 

Download Report

 

Disclaimer

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation for the purchase or sale of any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs. Investments in the products mentioned herein are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. You may wish to seek advice from a financial adviser before making a commitment to undertake any investment. In the event that you choose not to seek advice from a financial adviser, you should consider carefully whether the investment is suitable for you.

The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. Any opinions, projections or forward-looking statements expressed herein or information presented (which includes estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information.

References to specific corporations/companies and/or their trademarks are not intended as recommendations to purchase or sell investments in such corporations/companies nor do they directly or indirectly express or imply any sponsorship, affiliation, certification, association, approval, connection or endorsement between any of these corporations/companies and LGI or the products and services of LGI. It should not be assumed that investment in the securities mentioned was or will be profitable.

This publication is not intended for use by any person other than the intended recipient and may not be reproduced, distributed or published without prior written consent of LGI. This publication may not be distributed in any jurisdiction or to any person where such distribution is prohibited (including Canada, Japan, the United States of America) or to US persons (as such term is defined in Regulation S under the US Securities Act of 1933).

©Lion Global Investors® Limited (UEN/ Registration No. 198601745D) is a Singapore incorporated company, and is not related to any asset or fund management entity that is domiciled in Europe or the United States.

Topics

Categories

Share this article

Disclaimer

You will be leaving this website and will be redirected to a third party website. Please note that the 3rd party site is independent of this website. Lion Global Investors Limited makes no representations, accepts no responsibility for the content, security and privacy policies or the use of the 3rd party site or for that of subsequent links and shall not be liable for any loss or damages caused or alleged to be caused by or in connection with the use of or reliance on any such content, goods or services available on or through the 3rd party site or its subsequent links.

If you do not wish to continue to the 3rd party site, click Close or use the Back button on your web browser.

Disclaimer

You will be leaving this website and will be redirected to a third party website. Please note that the 3rd party site is independent of this website. Lion Global Investors Limited makes no representations, accepts no responsibility for the content, security and privacy policies or the use of the 3rd party site or for that of subsequent links and shall not be liable for any loss or damages caused or alleged to be caused by or in connection with the use of or reliance on any such content, goods or services available on or through the 3rd party site or its subsequent links.

If you do not wish to continue to the 3rd party site, click Close or use the Back button on your web browser.

Comparing the TER cost for 20 years

Here’s the difference a low cost advantage makes to cost savings

Here's how much you pay

$190,272.13
Selected TER 1.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $90,359.56 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 2 years and 6 months.

Here's how much you pay

$271,950.61
Selected TER 1.50% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $172,038.04 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 4 years and 9 months.

Here's how much you pay

$345,744.19
Selected TER 2.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $ 245,831.62 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 6 years and 9 months.

TER (Total Expense Ratio) is the sum of various identified operating expenses charged on an ongoing basis to the fund’s assets as a percentage of the fund’s average net asset value calculated over a 12-month period at the close of the annual and semi-annual financial statements of the fund for all the p.a. tabs (1.0%, 1.5%, 2.0%).

The above scenarios are for illustration purpose only. Past performance, as well as any prediction, projection or forecast on the economy, securities market or the economic trends of the markets are not necessarily indicative of the future or likely performance of the funds. Calculations based purely on costs with no market movement or investment returns.