Public Equities

Hong Kong China Equities: Finding Value Amid the Reopening

February 2023 – 7 min read

An economic reopening, a recovery in fundamentals, and favorable policy support are creating a compelling, long-term case for Chinese equities.

In 2023, many of the headwinds that have been dragging the Chinese equity market down over the last two years may turn into tailwinds. Indeed, Chinese equities have faced a number of challenges, from the self-induced, risk-focused regulatory tightening on certain sectors, to COVID outbreaks and resultant lockdowns hindering domestic activities, to weakness across the property markets.

But with the reopening of the Chinese economy at the end of 2022, we believe the bear market has ended and the outlook for Chinese equities looks positive. In particular, China’s government has committed to focusing on growth—suggesting that a number of supportive policies are likely to follow. Subsequently, the International Monetary Fund has forecast that China’s economic growth could reach 5.2% in 2023, outpacing that of developed markets and making China one of the fastest growing major economies.1

Economic Reopening to Support Consumption

China’s zero-COVID policy was a key factor in stalling the country’s economic engine in 2022, with lockdowns disrupting domestic manufacturing and consumption activities. However, toward the end of the year, the government concluded that the lethality of COVID variants had fallen to acceptable levels and began efforts to rapidly unwind restrictions.

By January 2023, high-frequency mobility data showed that both intra-city and intercity traffic are rapidly recovering. Subway ridership in major cities has improved by around 50% from the trough, to approximately 30% below pre-pandemic levels, while national highway traffic mobility has exceeded the same period.2 Recovery of air traffic has been staggered, with domestic flights returning to 96% by the end of January, while cross-regional flights recovered to 13% of the pre-pandemic level, led by flights to Greater China destinations, Southeast Asia and Europe.3 This favorable backdrop, combined with the Chinese New Year holidays, has led to a rebound in domestic consumption. Over the Chinese New Year holidays, domestic tourism revenue grew by 30% year-over-year, reaching 73% of the 2019 level, while catering revenues grew by 16.4% year-over-year, or 73% of the pre-pandemic level.4

Figure 1: China Sees Recovery in Air Traffic

hong-kong-china-chart1.jpgSource: J.P. Morgan Research. As of January 2023.

1. Source: International Monetary Fund; World Economic Outlook. As of January 2023.
2. Source: J.P. Morgan Research. As of January 2023.
3. Source: J.P. Morgan Research. As of January 2023.
4. Source: CLSA Research. As of January 2023.

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William Fong, CFA

Head of Hong Kong China Equities

Robert Li

Client Portfolio Manager, Equities

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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