What kind of impact will China have on the market after three years of epidemic prevention and reopening?

China announced in January this year (2023) that it would cancel the restrictions it had adopted for many years on COVID-19 (severe special infectious pneumonia, new crown pneumonia, Wuhan pneumonia), and officially reopen its borders. After the week-long Lunar New Year holiday, with Consumption rebounded and optimism grew that the economic outlook was improving.

The British “Financial Times” reported on Monday (January 30) that since China restarted its economy in January, market traders predict that demand for copper, iron ore and Chinese technology stocks will rise sharply. The lows are up $700 billion. Reports say China’s benchmark stock index is close to a bull market.

However, for the world’s second largest economy, whether it can fully recover is still full of uncertainties. “Expectations are high that China’s economic data will improve in February, but no one is 100 percent sure yet,” Ken Cheung, chief Asia FX strategist at Mizuho Bank, told the Financial Times.

He continued that after three years of the epidemic in China, “consumption patterns may have changed considerably during this time.”

Increased demand for hard products

The Financial Times reported that China is still one of the largest consumers of hard commodities in the world. The market is optimistic about the prospects of China’s real estate industry to drive demand, making China’s hard commodities the biggest winner so far in restarting the economy.

He Tianyu, China copper analyst at CRU Group, said: “The recovery of real estate, the successive delivery of unfinished residences, and the next renewable energy and new energy vehicles are still the main drivers affecting copper prices.”

Citibank analyst Shreyas Madabushi pointed to “a series of bullish trends”, including accelerated start-ups, expected restocking by Chinese steel mills amid low inventories, and demand and supply-side support measures for China’s real estate sector. The accelerated start of construction is expected to create more demand, with Citigroup predicting iron ore prices will reach $130 a ton.

Judging from the 2022 annual real estate development investment and sales data released by the National Bureau of Statistics of China on the 17th, the national real estate development investment in 2022 will be 13.2895 billion yuan (about NT$59.4 trillion), with an annual reduction rate of 10%; The investment is 10.646 billion yuan, with an annual reduction rate of 9.5%.

The Chinese media “China-Singapore Jingwei” quoted Zheng Houcheng, director of the Yingda Securities Research Institute, as saying on the 18th that although the data showed a significant downward trend, the growth rate of China’s real estate investment still has two major advantages. Judging from the comprehensive prosperity index of the national real estate development industry, going December (2022) is down 0.07 from November, maintaining a downward trend, but the rate of decline has narrowed; the cumulative annual growth rate of real estate domestic loans has shown a steady upward trend since July last year.

Chinese concept stocks soared

Hong Kong’s Hang Seng Technology Index, made up of Chinese companies, has soared nearly 60 percent since its October lows, with heavyweights such as Tencent and Alibaba having a combined market capitalization of $350 billion, according to Bloomberg data.

China is beginning to slow its regulatory crackdown on the tech sector, catching the attention of international asset managers. The Financial Times reported that analysts at Morgan Stanley are bullish on large-cap stocks, high-liquidity Chinese Internet companies, etc., and at the same time believe that technology stocks will “reopen and rebound” in the Chinese stock market.

The report also pointed out that Goldman Sachs analysts recently raised the earnings growth forecast for Chinese stocks from the previous 13% to 17% in 2023, and boosted the prospect of Chinese companies listing in Hong Kong. to 34%.

Asian currencies benefit

The renminbi currency has recovered since China reopened, and even senior officials in Beijing have warned against making “one-way bets” on the yuan’s appreciation, warnings of the kind typically used to discourage speculation, the Financial Times reported .

Mizuho Bank’s Ken Cheung warned that investors must still prepare for “more two-way volatility” in the yuan exchange rate market. At the same time, he predicted that the exchange rate of the yuan against the US dollar by the end of this year will be 6.7 yuan.

The Thai currency is seen rebounding as Chinese tourists travel abroad again, with forward markets forecasting a 4% year-end gain for the baht against the dollar, while the Australian dollar is expected to climb 3% on higher Chinese demand for goods.

The South Korean won has risen even more, and is now up more than 15% against the dollar over the same period. But Ken Cheung warned that despite expectations for a surge in exports to China, a bleak outlook for South Korea’s economy and geopolitical tensions will likely limit gains this year.

retaliatory consumption

Although the current private savings rate in China is as high as 36%, much higher than the 30% before the epidemic, the consumption demand that has been suppressed for three years will still be a great force .

Chinese official media “People.cn” published a commentary on Sunday (29th) that during the Spring Festival holiday, China’s domestic tourists traveled 308 million times, a year-on-year increase of 23.1%; about 410 million express parcels were received, and 330 million express parcels were delivered. 100 million pieces, an increase of 5.1% and 10.0% respectively compared with last year’s Spring Festival holiday. The article points out that the flow of people and the circulation of goods demonstrate China’s vitality.

The comment quoted relevant data, saying that movie box office of over 6.7 billion yuan, domestic tourism revenue of 375.843 billion yuan, the number of orders for multi-person dine-in meal packages across the country increased by 53% year-on-year, and restaurant consumption expenditures increased by 80% year-on-year. People’s Daily Online reported that the strong recovery of domestic consumption has brought significant economic effects and injected confidence into the economy.

The “New York Times” reported that Thailand’s economy, which relies heavily on tourism, has lost tens of billions of dollars in spending by Chinese tourists in the past three years. Thailand’s tourism department expects more Chinese tourists to arrive in the second quarter, and Chinese tourists will bring back about US$230 million in revenue to Chiang Mai, Thailand this year.

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