What To Watch Before And After China’s Yearly “Lianghui” Gathering
In this Q&A, Yu Chen Jun, Senior Fund Manager, provides his insights on the implications of the yearly gathering for the Chinese financial assets and investing in which sectors represents buying in China’s future and secular development.
Q – Question
CJ – Yu Chen Jun
Q: The National People’s Congress is scheduled for 22 May. What are the implications for the financial market?
CJ: The officials now convene the yearly gathering carrying a vital indication that the virus is widely contained on the mainland. This reflects the government’s manifest confidence that the economy is reopened in phases, and the process is mostly on track. We expect the “Lianghui” meeting to be the venue to announce fiscal package expansion and to provide clarity for the growth target, both favorable to market sentiment. For instance, the government can enlarge the budgetary deficit to support the small- and medium enterprises and job market. Looking further ahead, we believe that the lower base effect will play out and result in a substantial growth on a year-on-year basis in the first half of 2021.
Q: What is possible to come after the worst quarter economic growth for China earlier this year?
CJ: The looming uncertainty for 2020 was the impact caused by COVID-19. China is believed to be soon rid of the pandemic.
In the first quarter of the year, the virus spread and resultant lockdown has led to the 6.8% decline, marking its first negative quarterly GDP growth reading. Facing the challenges, the Chinese government would introduce various measures to support the economy, especially to support the smaller-scale companies and consumption-related enterprises.
We expect China’s economy to hit bottom from the third quarter and to perform better in 2021. Although battered by the slackening demand worldwide, the export sector faces an environment less severe than feared as shown in the April figures. Overall, as global central banks are now putting more effort to ease the policies, we are optimistic about the Chinese assets, especially A-shares, which exhibits better investment opportunities.
Q: With your views on China’s economy and the results of the conference, which sectors will be your investment focus?
CJ: China is partially released from the uncertainties caused by the virus outbreak, and the reasonable amount of stimulus measures shall continue to support China’s economy.
Against this backdrop, we stick to bottom-up stock selection and favor the sectors that are primarily driven by domestic demand, and those that participate in structural growth areas. Companies that exhibit healthy business normalization from the public health crisis and long-term resilience are also in favor.
We continue to favor the sectors that actively participate in technological innovation, consumption upgrade. The industry leaders, with strong growth prospect and dominance in product pricing, are better.
Metaphorically speaking, buying these sectors means buying in China’s future. What we hope for is to invest in the country’s future, where lies no longer in the old economy. Instead, the new economy is the destination we should eye.
Yu Chen Jun is a Senior Fund Manager at Value Partners, and a member of the Value Partners Research and Portfolio Management Team.
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