Reports of China’s looming economic demise may be greatly exaggerated, with strong consumer spending and foreign investment likely to support the country’s growth through 2020.
China’s economic growth has been slowing in recent years, with GDP rising 6 per cent in the July-September period – the slowest pace since the 1990s. That – coupled with the impacts of the US-China trade war and increasing global scrutiny of Chinese Communist Party – has led to predictions that the world’s largest economy could grind to a halt.
But there’s still plenty of cause for optimism.
“2020 has kicked off with a fairly positive backdrop for equity markets including the soon-to-be-signed US-China phase one trade agreement, more monetary stimulus from the PBOC, and indicators pointing to stabilisation of Chinese economic growth,” said Nicholas Yeo, head of China equities at Aberdeen Standard Investments.
“Against this backdrop, we observe that domestically focused Chinese firms are better insulated from a possible deterioration in trade relations or global growth. China’s huge domestic economy will remain well supported by rising wealth and consumption as well as targeted monetary and fiscal stimuli.”
While volatility will likely remain a consideration given the economic and political obstacles to a more comprehensive US-China trade deal – and the uncertainty created by the upcoming US presidential election – China’s fast-growing middle-class will continue to drive local company revenues and profits. Aberdeen forecasts growth in the high-end food and liquor, travel, healthcare and life insurance sectors.
“In addition, we think the inclusion of A-shares into global benchmark indices will [help institutionalise] the onshore domestic market, improving governance standards and acting as a tailwind for foreign investment into Chinese stocks,” Mr Yeo said.
“Well-run companies with good capital management should outperform over time.”