The Bund in Shanghai, China, October 17, 2022. China’s gross domestic product grew 3% in 2022, less than half of 2021’s rate.
Qilai Shen | Bloomberg | Getty Images
China’s economy looks set to pick up again in 2023, but much depends on one variable ̵[ads1]1; the consumer, investment management firm KraneShares said.
“As external demand falls due to an impending recession in the West, China’s economy must rely more heavily on the consumer,” said KraneShares’ international head, Xiaolin Chen.
“We think the reopening could lead to a V-shaped recovery in the share prices of China’s consumer brands in early 2023. The rally could be driven by pent-up demand, high savings and a wealth effect as property prices pick up.” Chen said.
China’s gross domestic product grew 3% in 2022, less than half of 2021’s rate. The country’s zero-Covid policy, worsening relations with the US, as well as real estate’s “taper tantrum” in 2022 dampened growth, KraneShares said in a report released last week.
In December, China pledged to make domestic demand an economic priority.
“The fallout from regulatory changes affecting the property development industry lasted longer than expected despite a commitment by the government to stabilize the sector,” Chen said.
China’s property market slowed sharply in 2022 as the government tightened restrictions on loans from developers.
“Fortunately, reopening and a new infusion of capital in China’s property development industry has the potential to significantly boost consumer confidence, which will be a catalyst for China markets in 2023,” Chen said.
She noted that Internet companies such as Alibaba and Meituan were hit by the technological onslaught, while consumer categories fared better.
“While offshore stocks (mainly internet companies) suffered from industry regulations and geopolitical risks, the A-share market (mainly consumer staples, healthcare and clean tech) benefited from the stimulus and supportive policies,” she said.
Chen added that emerging sectors such as cloud services and semiconductors, while promising, may take years to contribute significantly to China’s economy.
“In 2023, we encourage investors to take a holistic view of China’s capital markets, and include in any allocation both onshore and offshore stocks and bonds to both manage risk and ensure exposure to the greatest possible opportunity,” Chen said.
“We also encourage investors to take a long-term view,” she added.