The Chinese economy has retained momentum from the second quarter, with GDP rising by 4.9% year-on-year in the third quarter. The sustained recovery will further support confidence among investors, Chaoping Zhu and Aidan Yao believe.
Zhu is a global market strategist at JP Morgan Asset Management and Yao is AXA Investment Managers’ senior emerging Asia economist.
Both executives are confident that fiscal policy will remain top priority for the Chinese government, and this will further support industrial production, exports and employment, in particular.
China’s economy could potentially revert back to its pre-crisis trend growth of 5.5-6% by the year end, said Yao, who observed that its industrial production, exports, and fixed asset investment have largely returned to their pre-Covid growth levels.
He said September saw export growth accelerate for the fifth consecutive month to 9.9%, and industrial production grew above its pre-Covid level to 6.9%. Within that, manufacturing production – backed by in auto, machinery, technology products and high-valued equipment - accelerated to 7.6%.
‘These productions should be further supported in the near-term by the rollout of new mobile devices from the likes of Apple and Huawei, and strong demand for passenger vehicles with September sales up 12.8%.
‘Industrial output growth is likely to stay above 6% in Q4 to meet strong demand from both domestic and global economies,’ Yao said.
Zhu pointed out that China’s service sectors were also catching up when most of the social-distancing measures were eased in the third quarter. He said a 0.4% year-over-year growth was reported in year-to-date service sector value-add, signalling a more broad-based growth in the economy.
‘Meanwhile, growth rates of retail sales were much stronger in September than market expectation. State-led infrastructure investment remained to be an important supporting factor, growing 0.2% year-on-year in the past nine months from January to August,’ he said.
The Chinese government has almost completed the issuance of RMB 3.55tn ($530bn) special bonds, and Zhu expects the momentum in infrastructure investment to continue into Q1 2021.
Looking forward, the strategist said domestic economic activities are expected to further normalize in the upcoming quarters. ‘When consumers’ confidence improves, consumption might take over investment to become the major contributor to domestic demand.
‘This might benefit the manufacturers of consumer goods, and further support private fixed asset investment.’
The China equity and bond sectors returned 34.8% and 1.7%, respectively, over one year ending September, data from Citywire show. The Mirae Asset China Sector Leader fund and the BGF China Bond fund are among the top performers.