It Won’t Be a Smooth Ride, but China is Turning Around
By Citi Wealth Insights |
Since mid-May, China’s policymakers had staged a steady drumbeat of declarations to support the economy. By June, this has turned into a multi-ministry comprehensive action to turn the economy and markets around. The recovery is likely to be bumpy, as there are a number of risks, but it is likely to be a long one, with multiple areas of opportunity.
"Pent-up demand” for consumer goods is a thing of the past. Higher inventories are a thing of the future. The current trajectory of imports, production, and spending argues for a period of excess inventories to come and certain prices to be marked down. Citi analysts expect a downshift in consumer spending growth this year, but not a contraction. What’s most relevant for forward-looking financial markets in 2022 is the pace of moderation. This will significantly determine the Fed’s actions.
Lagging indicators such as employment and inventory restocking provide “inertia” for economic growth to continue this year. However, a demand slowdown is inevitable. Therefore, Citi analysts have further shifted their asset allocation to better absorb greater market volatility and less robust economic growth following a strong recovery.
The valuation of Chinese equity markets has become far more attractive after the recent correction. MSCI China is now only valued at 53% of the S&P 500, a historic low. Given the expected additional fiscal policy stimulus and further monetary policy easing, Chinese asset prices will likely see support. CIO maintains a positive view on the Chinese equity market for long-term investors.
Conservative Means the Right Fixed Income Allocations & Quality
By Citi Wealth Insights |
Conservative portfolios will also shift toward quality bonds now that their yields are higher on the Fed’s sharp “about face.” Quality is an important consideration at this moment. CIO’s thematic overweight to consistent dividend growers has translated into stable returns this year.
Wealth Insights | Asia Pac / EM | Equities | Coronavirus COVID-19
Oversold Chinese stocks present a potential tactical opportunity
By Citi Wealth Insights |
The recent surge in COVID-19 infections in China hit a two-year high on Tuesday, driving stocks in the region to end the day at 21-month lows and raising serious concerns about the economic costs in the government’s quest to contain the disease. Makers from flash drives to glass for Apple’s iPhone screens are facing large setbacks as they comply with new stringent curbs, further straining global supply chains. Four cities (including Shenzhen, the home of major local tech firms like Huawei, Tencent, ZTE, Oppo, etc.) have been locked down, and Shanghai is also at risk of a lockdown.
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