2023: China is the global wild card for 2023. The world’s second largest economy could be the only one to pick up next year. This would be a crucial bulwark against rising global recession risks. And help those directly exposed, from the luxury and materials sector to economies from Germany and Australia. China has started to ease its self-imposed zero-covid policy and the crackdown on its huge property sector. Whilst it’s low inflation rate gives it extra policy flexibility. A local consumer recovery is increasingly needed to offset the global drags on its manufacturing export powerhouse. Its depressed equity markets are very sensitive to any less-bad news.
COVID: New covid cases are at a record high (see chart), 25% of the economy under lockdown restrictions, and recent protests illustrate consumer frustration. But the world’s last remaining zero-covid policy is easing. 20 specific guidelines been published to loosen policy and better balance economic versus health needs. A ‘closed loop’ manufacturing policy minimizes factory impacts, though Foxconn’ disruption shows this is not perfect. A stepped up elderly vaccination program and new covid specific hospitals are preparations for more gradual easing. This is seen after March’s 14th National People’s Congress, though the economy may need it sooner.
FUTURE: Chinese equities are the world’s worst performing this year. The market now has a single-digit P/E valuation. And ‘short China’ is the 2nd most crowded trade in the BAML investor survey. Yet, it has led global markets off the October low, in a sign of how a little less-bad news can go a long way. Consumption drives 55% of the economy, but retail sales and PMIs are contracting as lockdowns mount, adding urgency to a covid easing. @ChinaTech, @ChinaCar.
All data, figures & charts are valid as of 29/11/2022