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China 🀄 recovery has been uneven. Would the market return to pre-pandemic levels, and if so, what would be the contributing factors?

2/1/2024

Despite efforts to stimulate the economy and revive the property sector, China post-pandemic growth remains subdued. The main drag on China stock market performance came from renewable energy, consumer discretionary services, and the property sector.


Many investors still focus on the property sector but neglect its rapidly growing digital economy, including areas such as Artificial Intelligence (AI), Electric Vehicles (EV), Renewables, Data Mining, Machine Learning, Cloud Computing, etc., which accounted for

41.5% of China GDP in 2022 according to China Academy of Information and Communications Technology. This is in line with the Digital China initiative outlined in China 14th five-year plan (2021-2025) that projected a growth of 25% in its data elements market.


US restrictions on advanced chips critical to the development of AI tech as well as cutting-edge weapons also forced China tech giants to be self-sufficient in this area.


EVs have also been growing fast in China. As of 3Q2023, China remained the largest pure EV market globally, accounting for 58% of global market share versus the US’ 12%. China EV brands also experienced significant growth in overseas markets in the same period, with a fourfold increase y-o-y, reaching 130,000 vehicles.


We expect more policy interventions and stimulus measures from the government and

regulators to avert default in the property sector, including larger deficit spending by the government and further interest rate cuts in 2024. However, the focus is not on making it a pillar to support the economy. Separately, new growth areas have the potential to expand further in China, transforming the economic structure over the longer term.


Digital technologies have been increasingly applied into a wide range of fields and have integrated with China real economy, as evidenced by increased digital business expenditures in enterprises that are expected to reach CAGR of 19.1% between 2023 and 2026 according to International Data Corp.


These would drive China economy and market.


(Source: Phillip Capital Management Sdn Bhd)

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