The bank's asset management business explains what it thinks about China as the country loosens pandemic controls which had been among the toughest in the world.
China’s decision to scrap zero-Covid controls, which had been notoriously harsh, is a major shift in the world’s second-largest economy. Wealth managers are already positioning for the change, eyeing opportunities such as in Hong Kong’s property and luxury goods markets as border controls are loosened.
HSBC Asset Management, part of HSBC, predicts that mainland China’s gross domestic product could expand by 5 to 5.5 per cent in 2023; it thinks that this year will be one of “cyclical recovery and rebound.”
The group remans overweight on Asia asset classes. Stock markets and currencies in North Asia remain “attractively priced” relative to history, and are set to benefit from better news on the regional economic cycle, it said.
“China’s growth profile is likely to remain volatile in Q1 due to Covid-related disruption, but we are expecting a boomlet of activity from Q2 onwards,” Joseph Little, global chief strategist at HSBC Asset Management, said. “This will be driven by a renewed surge in consumer activity and a significant revival in tourism, benefiting China and the rest of Asia. High-frequency data, such as metro trips, already point to early signs of a consumer recovery.”
The strategist reckons that the re-opening upswing in China is likely to be less pronounced than what was seen in Western nations due softer consumer confidence, and headwinds in the services and construction sectors that were already present prior to the recent Covid wave.
“Household income support has also not been as generous in China as in the West. Meanwhile, the property sector remains a challenge, with a recovery in homebuyer confidence and property sales critical to the outlook. The much-trailed global growth slowdown will also drag on Chinese export growth in 2023,” Little said.
HSBC Asset management thinks inflation pressures will be limited in China this year, at an average rate of 2.5 per cent.
“The new market tailwinds mark an important turning point for Asia and emerging markets. After a `poly-crisis’ of rolling economic and political shocks in 2022, which hampered performance, the macro backdrop for emerging markets has become more constructive in 2023,” Little said. “We expect these tailwinds to sustain as we move through the year. The US dollar, for example, should continue to weaken over the course of 2023, linked to a Fed policy pivot, US disinflation, and policy normalisation at other central banks.”