The much widely anticipated reopening growth of China has been spotty, with many market experts dialling back their bullish forecasts made just a couple of months ago.
Wang Yi, head of quantitative investment at CSOP Asset Management, notes that the recovery following the lifting of the pandemic curbs is “slower than expected”. Exports for May, for example, were down 7.5% y-o-y, a sharp reversal from the 8.5% growth chalked up for April. The drop took place amid a wider global slowdown as central banks indicated their intention to keep rates high in a bid to fight inflation.
Nonetheless, Wang believes that betting on China’s reopening recovery is still a valid investment theme. “China is definitely a topic you cannot avoid,” says Wang, in an interview with The Edge Singapore.
He believes he is not alone, for the market consensus is estimating that China and emerging markets (EM) will outperform US and Europe.
“However, my view is that we will still need some time for the [China] economy and market to fully recover because we have been suffering the past couple of years and it has not yet recovered,” he qualifies.
Wang believes that simple observations — such as increased spending in Tier 1 cities in China, traffic jams, crowds in subways and other public spaces, as well as travelling habits — show that the economy is on a rebound and that it presents a good opportunity to invest in China for this year.
See also: CapitaLand Investment closes new KRW200 billion value-add office fund
Property recovery
While the overall sentiment is positive on China, Wang has pointed out several industries that are beneficiaries of the recovery and will see some short- to mid-term growth that investors can focus on.
“Consumer consumption [in China] is naturally going to increase with the reopening and consumption is linked to a lot of industries,” says Wang. Some examples that he has listed include the manufacturing sector, services sector, and e-commerce industry.
See also: India remains a favourite with fund managers
Wang also notes that several leading consumption stocks did not suffer much in the past few years during the lockdown periods. Several of these companies hardly saw their valuations hurt. Hence, growth for these sectors may stay muted.
On the other hand, industries such as the industrial, real estate and real estate-related sectors like furniture goods, as well as e-commerce, did suffer quite a bit in the past two years. “I think that we would like to pay more attention to how the economy recovers,” says Wang.
The way Wang sees it, real estate is one of the most important sectors that supports China’s domestic demand. Over the past few years, the government put in place policies to temper the sector that was seen as over-leveraged and overheated, including the infamous “three red lines” which mainland developers are not to “cross”.
However, there have been signs since late last year of a reversal, as some of the restrictive measures, such as purchasing curbs, have been eased. More recently, state-owned media have reported that stimulus packages are being considered.
After all, real estate is not merely an economic sector that accounts for a quarter of China’s economy, it is also linked to a lot of other industries, both upstream and downstream, such as construction, construction materials and energy.
Wang notes that China’s recovery has been slower than expected, which has caused the property sector to yet to see a full recovery. “In terms of magnitude [of financial recovery], we are talking about trillions of renminbi every month. That’s very large. And right now, we see some kind of recovery signal within the sector,” he adds.
Concurrently, the Chinese government has tweaked its policy to release more credit for the sector, as compared to the government tightening credit some two years ago to deleverage the developers, which then caused a massive slowdown in property development.
For more stories about where money flows, click here for Capital Section
“I don’t think the real estate sector can come back to the kind of magnitude or size it originally had [before the pandemic]. But the key thing is that we are talking about a very big sector in China and it represents a large consumption of money,” says Wang.
From an economic perspective, Wang does not see another sector that can replace the whole real estate sector. “No single industry can represent this kind of size within just one year or two years,” says Wang. While there have been talks of the infrastructure sector being a likely replacement, Wang believes that this is unlikely to happen, or at least not in the short term.
“Going forward, what we would like to see is stabilisation going down the sector, because in the previous two or three years ago, we saw a lot of defaults from the developers, buyers [and other related parties]. So, what we would like to see is a more confident sector,” says Wang, adding that eyes should be on the willingness of people to buy new properties in China.
Apart from the recovering property market in China, Wang also has his eyes on the travel and hospitality sectors that are expected to see some short-term surge.
Tapping China-Asean links
With China being such a large economy, its reopening is bound to also trickle down and support the overall Asian economy. For example, of Asean’s total trade volume for 2022, the largest share is within the member countries with a share of 22.1%. The corresponding percentage with China is 18.7%, a significant gap over 10.9% with the US , according to a recent report by UOB.
Clearly, a pick-up in business activities in China is good news for regional economies including Japan, Korea, Taiwan and Singapore.
For Wang, the region’s semiconductor industry is singled out as a key beneficiary of this trend, with new orders seen from China, which is trying to beef up its own capabilities in this sphere.
Recently, CSOP, a leading ETF issuer, launched the CSOP iEdge Southeast Asia+ TECH Index ETF, touted as the first ETF listed here to take advantage of the tech industries of Asean and India. The ETF tracks the iEdge Southeast Asia+ TECH Index, providing exposure to 30 technology firms across six markets in Southeast Asia and India.
These companies include those in IT, software, retail, car manufacturing, and electronic components and manufacturing. The top 10 holdings are Sea, Delta Electronics Thailand, Astra International, Infosys, Wipro, Grab Holdings, Venture Corp V03 , Jardine Cycle & Carriage C07 , Elang Mahkota Teknologi and MakeMyTrip.
