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Why the Chinese economy and Chinese equities may surprise to the upside
Why the Chinese economy and Chinese equities may surprise to the upside
8/3/2023

The translation results below are generated by AliCloud’s machine translation engine and is purely for reference only. Premia Partners does not take responsibility for the accuracy or appropriateness of the content, and where the meaning differs from the original in English, the original version prevails.

In a refreshing break from the consensus of gloom surrounding China, Cambridge Associates wrote recently that the Chinese economy was not stalling. Meanwhile IMF holds steady its China GDP growth forecasts in the World Economic Outlook Update report released last week, at 5.2% for 2023 and 4.5% for 2024. In this article, our Senior Advisor Say Boon Lim shares more about why China may surprise to the upside and the appeal of Chinese equities as a relative value play.

IMF holds steady its China GDP growth forecasts. The International Monetary Fund last week released its World Economic Outlook Update report. Despite the negative media about China’s economy in recent months, the IMF maintained its GDP forecasts for China for 2023 (5.2%) and 2024 (4.5%). And of the countries on the IMF’s growth forecast table, China is still the second fastest growing in both years, next only to India.

Ten years ago, The Financial Times wrote of the risk of China’s economy “dropping out of the sky” – instead it grew by more than the current GDP of Japan and Germany combined. The media has seen an extraordinary amount of negative commentary on the Chinese economy in recent months, with language so extreme it reminded us of some of the more dire predictions over the years. One which we remember vividly – because the language was so graphic – was a commentary in the Financial Times published almost exactly 10 years ago, on 3 July 2013, which quoted an American “forecaster” warning that the Chinese economy was like a “jumbo jet” that was at risk of “dropping out of the sky”.

Quoting the forecaster’s jumbo jet analogy, the column said: “In recent years, a couple of engines have not been working well, and the pilot is now loath to keep straining the remaining good engines. He is allowing the plane to slow down, but if it slows too much, it will fall below stall speed and drop out of the sky.”

Over those past ten years, China’s nominal GDP grew almost another US$10 trillion. That’s way more than the current GDP of Japan and Germany combined.

“Scope for the Chinese economy and Chinese equities to surprise to the upside,” says US fund manager Cambridge Associates. In a refreshing break from the consensus of gloom surrounding China, US asset manager Cambridge Associates wrote recently (in June) that the Chinese economy was not stalling.

“Following a stronger-than-expected first quarter, recent economic data has softened, disappointing investor expectations of a sharper recovery after last year’s COVID-19 lockdown, but the Chinese economy is not on the verge of relapsing into recession,” the Cambridge Associates note said.

“The trend of steady, not stalling, growth is also reflected in corporate earnings, which are still expected to grow 18.5% in 2023 and have seen some positive earnings revisions recently. 

“Our sense is that geopolitics continues to have an outsized impact on Chinese equities. 

“The combination of disappointing growth and worsening relations (with the US) has heavily weighed on market sentiment, sending equity valuations back to levels similar to those seen last year before China abandoned its zero-COVID policy, despite a much better economic outlook at present.

“As a result, there remains scope for the Chinese economy and Chinese equities to surprise to the upside, given all the pessimism despite an economic outlook that looks favorable compared to expectations of a mild recession in Europe and the United States. For investors willing to tolerate the volatility, we continue to recommend holding modest overweights to Chinese equities relative to global equities, as a relative value play,” it said.



  • Simon Say Boon Lim
    Simon Say Boon Lim

    Senior Advisor

ChinaQualityGrowthReopeningPost-COVID

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  • Simon Say Boon Lim
    Simon Say Boon Lim

    Senior Advisor

ChinaQualityGrowthReopeningPost-COVID

The translation results below are generated by AliCloud’s machine translation engine and is purely for reference only. Premia Partners does not take responsibility for the accuracy or appropriateness of the content, and where the meaning differs from the original in English, the original version prevails.

In a refreshing break from the consensus of gloom surrounding China, Cambridge Associates wrote recently that the Chinese economy was not stalling. Meanwhile IMF holds steady its China GDP growth forecasts in the World Economic Outlook Update report released last week, at 5.2% for 2023 and 4.5% for 2024. In this article, our Senior Advisor Say Boon Lim shares more about why China may surprise to the upside and the appeal of Chinese equities as a relative value play.

IMF holds steady its China GDP growth forecasts. The International Monetary Fund last week released its World Economic Outlook Update report. Despite the negative media about China’s economy in recent months, the IMF maintained its GDP forecasts for China for 2023 (5.2%) and 2024 (4.5%). And of the countries on the IMF’s growth forecast table, China is still the second fastest growing in both years, next only to India.

Ten years ago, The Financial Times wrote of the risk of China’s economy “dropping out of the sky” – instead it grew by more than the current GDP of Japan and Germany combined. The media has seen an extraordinary amount of negative commentary on the Chinese economy in recent months, with language so extreme it reminded us of some of the more dire predictions over the years. One which we remember vividly – because the language was so graphic – was a commentary in the Financial Times published almost exactly 10 years ago, on 3 July 2013, which quoted an American “forecaster” warning that the Chinese economy was like a “jumbo jet” that was at risk of “dropping out of the sky”.

Quoting the forecaster’s jumbo jet analogy, the column said: “In recent years, a couple of engines have not been working well, and the pilot is now loath to keep straining the remaining good engines. He is allowing the plane to slow down, but if it slows too much, it will fall below stall speed and drop out of the sky.”

Over those past ten years, China’s nominal GDP grew almost another US$10 trillion. That’s way more than the current GDP of Japan and Germany combined.

“Scope for the Chinese economy and Chinese equities to surprise to the upside,” says US fund manager Cambridge Associates. In a refreshing break from the consensus of gloom surrounding China, US asset manager Cambridge Associates wrote recently (in June) that the Chinese economy was not stalling.

“Following a stronger-than-expected first quarter, recent economic data has softened, disappointing investor expectations of a sharper recovery after last year’s COVID-19 lockdown, but the Chinese economy is not on the verge of relapsing into recession,” the Cambridge Associates note said.

“The trend of steady, not stalling, growth is also reflected in corporate earnings, which are still expected to grow 18.5% in 2023 and have seen some positive earnings revisions recently. 

“Our sense is that geopolitics continues to have an outsized impact on Chinese equities. 

“The combination of disappointing growth and worsening relations (with the US) has heavily weighed on market sentiment, sending equity valuations back to levels similar to those seen last year before China abandoned its zero-COVID policy, despite a much better economic outlook at present.

“As a result, there remains scope for the Chinese economy and Chinese equities to surprise to the upside, given all the pessimism despite an economic outlook that looks favorable compared to expectations of a mild recession in Europe and the United States. For investors willing to tolerate the volatility, we continue to recommend holding modest overweights to Chinese equities relative to global equities, as a relative value play,” it said.



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