China’s economy not recovering ‘with equal velocity’

Signals are emerging that China’s economy is in recovery – but not all parts are recovering with equal velocity, according to Goldman Sachs Asset Management (GSAM).

As the Covid-19 pandemic damages the global economy, China could chart a path forward to recovery both in terms of the economy and equity market – and this could provide global support, according to GSAM.

“We have three observations on China’s recovery: The first is that the recovery in China coincided with the flattening of the Covid-19 case curve,” said Katie Koch, co-head of fundamental equity at GSAM.

“Second observation is that the industrial part of the economy in China recovered first, as labour and materials got back into place. Third, the consumer has been slower to recover. Urban traffic is only back to 65% of normalised levels,” she added.

After China’s “more draconian” approach to containing the spread of the coronavirus, it is now providing evidence of recovery as activities begin to normalise.

“Chinese equities have emerged as a safe harbour posting a smaller loss of -10% in comparison to the US at -20% and Europe at –23% respectively in the first quarter of 2020,” said Anneka Gupta, director of research at WisdomTree. “Investors are starting to pay closer attention to Chinese equities as their valuations are attractive in comparison to the rest of the developed world on a Price to Earnings (P/E) basis.

She added: “High frequency data is continuing to improve highlighting China’s renewed priority of normalising activities. We have observed industrial sectors resuming at a faster pace relative to the consumer and service sectors owing to loss of employment and household income.”

Despite positive signals, China’s economic recovery could be pegged back by weaker global demand. Royal Bank of Canada Wealth Management noted that while 85% or more Chinese companies resume work, a number are facing cancelled orders from overseas buyers.

© 2020 funds europe

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