Although China’s strict ‘zero-COVID’ policy has dampened its economic growth, this investment firm argues that long-term investment in China “remains strong”.
American Century released their outlook report on emerging economics, which outlined whether Chinese equities were likely to rebound over the next year.
Steep declines in Chinese-based equities had been significantly caused by the nation’s ‘zero-COVID’ policy. Mobility restrictions continued to stifle investor sentiment and consumer confidence, which additionally hindered discretionary spending necessary to economic recovery.
Property market instability due to mortgage-related strikes also remained a concern for investors. This had led to further weakening of the economy, alongside declines in apartment prices and home sales.
However, the report noted that the Chinese government had expressed commitment towards stabilising the property market.
Despite lowered investor confidence, American Century said it expected policymakers to modify their COVID-19 response policies given the ongoing economic pressures. The firm believed the country would announce new measures moving forward to support economic growth during the National People’s Congress in March 2023.
Market volatility would be likely to remain in the short-term, but with changing COVID-19 measures and policy easing, the country should recover through 2023.
“We expect discretionary consumer spending to rebound as pandemic conditions ease and the recovery strengthens,” said American Century. The report additionally identified strong demand for renewables and electric vehicles across the nation.
They added: “We see opportunities in internet ‘platform’ companies as government support should reduce regulatory uncertainty and improve market sentiment. We think this formerly pressured sector will likely outperform as China’s overall market rallies”.
The firm suggested that the lessening of global headwinds alongside improved policy initiatives in China would reinforce a positive outlook for emerging economies in 2023.
