China: a bull market?
In equities, the big winner so far this year has been China following the dramatic shift away from a zero-Covid policy as investors hope that economic growth will rebound as the country reopens. As we well know, the path out of lockdowns is rarely smooth. Cases have risen dramatically and some 900 million people in China have been infected with the coronavirus as of 11 January, according to a study by Peking University, equating to over 60% of the population.
While official data shows just five or fewer deaths a day over the past month, this is likely to be a significant underestimate. Nevertheless, with such high infection rates already, cases will soon fall and, despite the human cost particularly amongst the elderly where vaccination rates are low, China is likely to come through this wave quickly and expected to post much stronger economic growth this year.
Indeed, while the western world contemplates a recession, many Asian economies, including the most populous, China and India, look set to deliver solid growth this year, which is supportive of our preference for Emerging Asia equities in portfolios.
After two-years in which Chinese authorities weighed against the large Chinese technology companies, resulting in lower equity prices, the Central Bank official Guo Shuqing, is reported in saying that the crackdown has come to an end. This will improve investor sentiment.
In addition to economic changes and policy easing in China, its attitude to the US the appears to be improving. The new Foreign Minister Qin Gang was most recently China’s ambassador to the US. He has demonstrated a willingness to build more positive relationships with the US, Australia and other western nations. Again, less fraught relationships between China and the western world should improve investor appetite.
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