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Magellan Capital's Britney Lam explains why she remains bullish on the Chinese market, and where she's still hoping to see more gains come through.
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Tag: SHENZHEN COMPONENT INDEX
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China’s economic data misses expectations as economy continues to show uneven recovery
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YANGZHOU, CHINA – MAY 02: Aerial view of tourists visiting the Dongguan street during the May Day holiday on May 2, 2023.
Vcg | Visual China Group | Getty Images
China’s economic data for April broadly missed expectations as the economy continued to show an uneven path of recovery from the impact of its stringent Covid restrictions.
Industrial production for April rose by 5.6% year-on-year, compared to the 10.9% expected by economists surveyed in a Reuters poll. The figure was up 3.9% in March following a muted start to the year.
Retail sales rose by 18.4% – lower than economists’ forecast a surge of 21%.
Fixed asset investment rose by 4.7%, against expectations of 5.5%. The reading rose 5.1% the previous month.
“China is in the stage of recovering, compared to last year, the numbers are positive as we just saw, but is the recovery good enough for the market, is the recovery good enough to meet investors’ expectations – that’s the big question here,” BofA Securities China equity strategist Winnie Wu told CNBC’s “Street Signs Asia.”
“It’s not good enough to meet with investors’ expectations – that’s a problem,” Wu said, adding that the momentum from China’s pent-up demand seems to be fading away.
“The recovery of income, of job security, and confidence will take time,” she said.
China stocks have pared most of the gains seen this year. The Shenzhen Component was down 4.67% quarter-to-date and up only 1.48% year-to-date, and notching a 9.5% drop from its peak in early February.
“Market sentiment remains very weak in our client conversations,” Goldman Sachs economist Hui Shan wrote in a Sunday report.
She expects more measures from the government rather than a change in interest rates to improve market confidence.
“Symbolic measures that aim at boosting confidence, such as RRR cuts, seem more likely to us, especially around quarter-end when liquidity demand is high,” she wrote, referring to banks’ reserve requirement ratio — the amount of funds banks need to hold as reserves.
Record-high youth unemployment
The latest data included a 20.4% youth jobless rate, the unemployment rate between ages 16 and 24. The reading in April marked a record high.
“Many people, investors see this as a leading indicator. If the younger people are unable to get jobs, don’t have the income security, where is the confidence, where is the consumption recovery coming from?” said Wu.
She said the question of confidence is resonated in weakened markets sentiment as well as other high-frequency data, including new home sales.
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After a ‘rollercoaster’ quarter, strategists are still relatively upbeat about Asia-Pacific markets
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“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
Vcg | Visual China Group | Getty Images
It’s been a dramatic quarter for Asia-Pacific stock markets, but strategists are expecting the region to be in better shape than its global peers.
Stocks in the Asia-Pacific were mixed on the first day of trade of the second quarter of the year, with economists predicting China’s recovery will cushion the dampening effect of high global interest rates on the regional economy.
Mainland China’s bourses led gains in the wider region on Monday, with the Shenzhen Component closing its session 1.4% higher and the Shanghai Composite up by 0.72%.
“China’s growth recovery and north Asia’s earnings rebound in 2024 remain our key investment themes and overweight areas,” Goldman Sachs’ strategists, led by Timothy Moe, wrote in a Saturday note.
The firm reiterated its expectations for China’s economy to grow by 6% this year — more than the government’s target of “around 5%.” The Goldman strategists said their views are supported by strong activity data seen in the previous quarter.
China’s official manufacturing purchasing managers’ index rose to 52.6 in February, marking the highest reading of factory activity data since April 2012, before falling to 51.9 in March.
S&P Global Ratings, in its second quarter outlook report, added that although China’s growth may not completely erase the impact of a global slowdown on Asia-Pacific markets, it will provide some support.
“China’s economy is on track to recover this year. For other economies this will dampen but not offset the hit of slower growth in the U.S. and Europe, the fading impact of domestic re-opening post the pandemic, and higher interest rates,” S&P’s Asia-Pacific economists Louis Kuijs and Vishrut Rana wrote in the report.
“We maintain our cautiously optimistic outlook for Asia-Pacific,” S&P economists wrote.
‘Rollercoaster’ Q1
Goldman Sachs strategists pointed to the volatility seen in Asia-Pacific stocks in the first quarter for the year.
“The first quarter of 2023 was a rollercoaster for investors in Asian regional equities,” the strategists wrote in the note.
The MSCI Asia Pacific ex-Japan index saw gains of roughly 11%, peaking at around 560 levels at the end of January.
It erased all of the gains by mid-March to fall below levels seen at the start of the year, and recently saw a rally of about 5%. That puts the index at a year-to-date gain of 3.62% as of last week’s close.
The index fell nearly 0.24% in a volatile first trading day of the quarter on Monday.
‘Relatively resilient’ to banking stresses
Goldman Sachs strategists added that overall macroeconomic conditions are beneficial for markets in the Asia-Pacific.
“The partial replacement of expectations of higher Fed rate hikes by lower US growth is relatively more favorable for most Asian economies,” Goldman strategists wrote, adding that “Asia appears relatively resilient to the recent DM [developed markets] banking stresses,” referring to recent banking turmoil in the United States and Europe.
BNP Paribas took a similar view.
“We think risks to Asian banks are limited,” BNP Paribas’ Manishi Raychaudhuri said in a March 27 note, describing the region’s debt-to-GDP ratios as relatively “safe.”
“Asia’s USD debt fell over the past 3 years and most Asian economies’ forex reserves appear safe relative to forex debt,” he wrote in the note.
“Liquidity remains abundant in Asia. Interest rates also have not risen too sharply in Asia,” he said.
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