In the year 2023, the China In an economic situation contrary to the situation in United State Based onEurope. This is why we believe that when the biggest unknowns are gone, the will will appear Chinese corporate value, especially if there is an orderly reopening of the economy. Coronavirus protests and the possible approval of a domestic mRNA vaccine have accelerated this process.
In November and December, after the conclusion Communist Party Congress Which grabbed the attention of the Chinese leadership for several months, there were important improvements on 3 fronts that negatively affected growth in 2022 and worried investors: 1) Corona virus non-spread policy, which went from having zero tolerance to living with the virus; 2) the Real estate market situation, with the government implementing a series of measures to support real estate, while keeping the idea of not wanting to encourage excessive leverage and speculation; 3) the Sino-American Geopolitical Relationsthanks to the meeting between Biden and Xi, who pledged to continue the dialogue (Secretary of State Antony Blinken is expected to visit China in February).
From a valuation perspective, China has reached the end of a significant profit reduction cycle, while the United States is at the end of an upgrade cycle. China’s divergent position in the dividend cycle makes Chinese stocks attractive relative to their US counterparts in 2023.
A committee Central Economic Work Conference (CEWC) The December meeting stressed the need for “stabilizing growth, stabilizing prices and stabilizing unemployment” and announced plans for more Expansionary policies and measures to support the economy, including an “income support package” for citizens in urban and rural areas. At the same time, the CEWC stressed maintaining a “conservative” approach to stimulus, balancing the need to address abuses in the real estate sector with a willingness to prevent risks to the financial system. In the direction of stimulating consumption, the Covid policy has been passed from “prevention” to “treatment”.
In early 2023, markets could experience a period of volatility, with positive implications related to reopening, potential improvement on the geopolitical front resulting from Blinken’s scheduled visit to Beijing and economic policy stimulus. On the other hand, the reality of reopening with mass infections could have a negative impact. We believe that China will be fully opened by the end of the first quarter, As winter approaches, treatments will become more available and vaccination rates will rise.
the Consensus estimates for Chinese GDP growth In 2023, it was just over 4%, with slow but improving expansion in the first half of 2023 and above-trend growth in the second half of the year. The gap in GDP forecasts this year may be the widest ever due to differing expectations about the reopening process. According to Bloomberg estimates, the Chinese stocks are expected to grow by 17% in 2023which was above expectations for most other major global equity markets, with the exception of India.
Moreover, valuations are low and investor positioning indicates a significant underweight in the Chinese market, while the US and EU are in the opposite position: near peaks in growth, earnings and currency (particularly the US), with a lackluster outlook. Both the United States and the European Union have started a cycle of declining earnings, which may continue for a few quarters. However, we believe that any rebound in China could come after the reopening process is complete and the housing market stabilizes, so that consumer sentiment can rebound from its recent multi-year lows.
expect it to be The government will continue to stimulate growth in the first half of the year. The potential appreciation of the Chinese currency could provide a positive boost to Chinese stocks from the perspective of dollar and euro investors. However, slower global growth in 2023 will inevitably lead to a decline in Chinese exports. The infrastructure and manufacturing sector should continue to support growth, especially in the first half of the year, thanks to fiscal stimulus and expectations of increased domestic demand, which will be the main driver of growth in 2023.
While the reopening is inflationary, the China’s inflation rate It is likely to remain well below developed markets thanks to a number of factors, including the fact that China is relatively autonomous in terms of energy compared to Europe. While the real estate sector may see some recovery in 2023, the government continues to stress that real estate is for residential use and not for speculation, meaning that leverage for the sector is likely to remain limited.
Within the framework of the macroeconomic improvement, especially thanks to the recovery of domestic demand, we believe that the sectors that can benefit the most are e-commerce, the real driver of consumption in China, and semiconductors, given the strategic importance that the sector has for Beijing. , and the Technologies and infrastructures related to the green economyincluding the electric vehicle ecosystem, once again the Chinese government’s interest in further growth in this area.