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China Perspectives - Growth remains strong but uneven - Focus on structural opportunities in consumer and growth

15/05/2023
Asia
Bond
China economy
China Perspectives

by Desmond Kuang, Chief Investment Officer, China, HSBC Global Private Banking and Wealth

  • Just as the Labour Day Holiday saw a significant rebound in travel in excess of 2019 levels, we note the rather pronounced contrast in recent data between the V shaped recovery in re-tail sales and services versus still weak manufacturing. Continuity in pro-growth policy is needed to sustain growth and to extend momentum to manufacturing and investment, con-sidering the still high youth unemployment and soft price indicators. However, we think it is too early to call a deflationary trend, contrary to some views
  • The residential property sales momentum in April has softened a little bit from the March highs but the YoY growth remains positive. On the property development value chain, we see strong backend (housing completion) momentum compared to still soft frontend (new ground opening). This suggests that the sector recovery is still in its early stages and devel-opers are focusing on cash flow recuperation and balance sheet repair. Central and local SOEs have had a material head start in this recovery and are gaining market share with un-precedented speed. Among consumer goods, recovery of demand for housing affiliated goods, such as appliances, furniture and decoration, remains weak
  • As Chinese growth recovery deepens, we see diverging signs of prosperity. Equity valuation broadly speaking remains very attractive as it has hardly caught up with the upward sur-prise in the GDP beat. We like sectors that are first beneficiaries of this cyclical recovery such as consumer discretionary and services, top SOE developers, construction services and communications. High growth segments such as Self-reliance and Green Transition also stay our preferred themes in Q2
  • For the bond market, the strong credit growth and GDP beat failed to have an upward impact on risk free rates as bond investors seemed fixated on the weak CPIs and further possible RRR cuts. We expect another 25 basis points RRR cut before the end of June. We keep our neutral stance on the China onshore bond market until more signs of broad-based recovery present themselves to ease bond investors’ concerns on growth sustainability into Q2

 

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