China's growth tremors: risks, opportunities and the road ahead

London, UK,

  • Economy: soft landing and light policy support. In terms of Chinese growth, we see the rate continuing to slow. Chinese GDP growth rose 6.0% in the third quarter of 2019 (Chinese authorities forecasted a range of 6.0%-6.5% YoY), the slowest pace since the early 1990s. Moving into 2020, we do expect that the new growth target will be set around 6.0%, if not lower, at between 5.5% and 6.0%, and our current forecast is confirmed at 5.8% YoY. Exports unsurprisingly have been weak, private capex has slowed notably, and public infrastructure has not picked up as expected. Going forward, we expect public infrastructure capex to accelerate, and the tight real estate policy stance to potentially moderate. Chinese policy mix remains stimulative, though in a very limited way so far and far away from the massive stimulus implemented in recent years.
  • Investment implications. Overall, we are moderately constructive on the China’s equity market. We see valuations as being supportive, though the earnings growth outlook appears muted. We maintain a preference for A-shares equities that are more exposed to the domestic Chinese economy that benefit from the MSCI inclusion process. We also see opportunities in supply chain shifts (Taiwanese and Chinese tech) and in domestic brands offering increasingly more competitive products to international brands.
  • Asia region. We prefer to be selective and take advantage of the domestic stories that look to be able to deliver some fiscal expansion. We are still constructive on India, although domestic demand remains weak. We like the IT/software sector, where companies enjoy large cash flow yields and the best ones are willing to pay higher dividends.
  • EM fixed income. We remain slightly positive on EM fixed income. We believe that this environment of still very loose monetary policy globally will continue to favour emerging markets bonds, including Asian bonds. In Asia, we are particularly positive on Indonesia and China duration.
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  1. ^ [1] Source: IPE “Top 500 Asset Managers” published in June 2022, based on assets under management as at 31/12/2021
  2. ^ [2] Amundi data as at 31/12/2022
  3. ^ [3] Boston, Dublin, London, Milan, Paris and Tokyo

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