Investment strategy
January 15, 2023

China’s reopening rally, Part II

January 15, 2023
David Bailin
Chief Investment Officer and Head of Citi Global Wealth Investments
Steven Wieting
Chief Investment Strategist and Chief Economist
SUMMARY

The strongest phase of the turnaround in expectations and sentiment for Chinese markets is likely to be in the first half of 2023 when full mobility returns to over a billion people for the first time in three years.


  • The MSCI China index has recovered a quarter of the bear market’s losses. This initial gain, a 52% lift off from the bottom of Oct. 31, is due to the complete abandonment of China’s zero-Covid policy and the economic reopening underway. This turn of events caught many global investors by surprise. Some observers wonder if the bull market is already over. We believe there remains substantial potential for further solid gains over the coming months.
  • Renewed lockdowns or a reversal of policy is unlikely. China may have already reached herd immunity across the country after the surge in infections over the past two months. Neither policymakers nor the public would tolerate a return to mass quarantines. Though mortalities have risen sharply, the hospital system looks likely to withstand the surge.
  • China’s economic recovery may be notably stronger than previously expected. Consumption is being fueled by a record 15 trillion yuan of savings added last year. The political priority has also returned to growth and development. Monetary and fiscal policies have both been ramping up, particularly for property developer financing. This is essential given that it contributes 20-30% of China’s GDP.
  • Economic reopening, broad and targeted stimulus and personal savings are more than likely to offset expected weakness in China’s exports. GDP growth likely rose 2.5-3.0% in 2022, weaker than we expected during the most intense lockdown phase. The reopening will likely boost growth in 2023 to around 5.5%, higher than our previous forecasts.
  • Long-term growth issues remain for China. In the near-term, China’s economy is likely to rebound sharply while the rest of the world is still likely to slow down. This divergence is likely to sustain Chinese equity outperformance. We expect 15% earnings growth and a rerating of stocks back to a 13x PE this year. These conservative assumptions suggest a further 20-30% gain in share prices is possible in 2023. 
OUTLOOK

Wealth outlook 2023

Markets in 2023 will lead the economic recovery we foresee for 2024. Therefore, we expect that 2023 may ultimately provide a series of meaningful opportunities for investors who are guided by relevant market precedents. Read our roadmap to recovery: Portfolios to anticipate opportunities. 

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