China’s property market is showing signs of some stabilization after being shut down by a Chinese Action on property developers, But Omicron and China’s zero-tolerance Covid policies could take a toll on its economy, so much so that Goldman Sachs on Tuesday lowered its economic growth outlook for 2022 from 4.8% to 4.3%.
There has been a lot of focus on the property sector in recent months, with concerns it could lead to a financial crisis or derail China’s already struggling economy, especially if it scares off potential home buyers.
Those fears may not be met, even if the property is still up for some slog. Early high-frequency data shows some stabilization in sales and prices in December as Chinese officials prioritize steady growth, and a change in rhetoric should help market sentiment, says Rosalia Yao, an analyst at Gavecall, in a note to clients. are getting.
Property sales typically see a seasonal pickup in late December, but Yao says the acceleration was particularly sharp last month, and volumes in 30 major cities hit 2019 levels at one point. While asset sales will post a sharp decline in the first quarter, she expects a gradual recovery, setting the stage for a more pronounced stabilization in the coming quarters.
And it has an element of good news for battered Chinese stocks. Although the iShares MSCI China Exchange-Traded Fund (MCHI) is up 2.35% at $63.30 on Tuesday morning, down 26% over the past year, bargain hunters are eyeing Chinese stocks.
But concerns remain, especially as Omicron collides with larger cities like eastern port hub Tianjin and Xi’an, Local governments have resumed restrictions that were last seen at the start of the pandemic, all in keeping with China’s zero-tolerance COVID policy. The virus has struck ahead of the Lunar New Year and the Winter Olympics starting in Beijing in early February.
China’s COVID policy, which includes ramping up testing and strict lockdowns, helped keep a lid on cases, allowing China’s economy to recover quickly while others battled the virus. But this approach could be costly as the virus becomes more transmissible, leading to stricter restrictions. The Goldman Sachs Asian Economics team wrote in a note that it estimates such a move could hit 0.9 percent on economic growth, resulting in an outlook that calls for 4.3% economic growth. There are also potential global repercussions in the form of sanctions. increasing supply chain bottlenecks and feed under inflationary pressure.
While a 4% control over economic growth may not sound as bad through the lens of developed economies like the US, it is problematic for a country that has targeted 6% growth. It is also an issue for President Xi Jinping, who is 20. looking for stability beforeth Party Congress, where he is expected to take a third term. Low economic growth also eases investors’ long-term concerns about China as it tries to move away from unbridled growth and toward greater stability.
Silver lining for investors: Weak growth could prompt Chinese officials to increase stimulus, with economists at Goldman writing that half of the 0.9 percentage point drag could be offset by such a policy. As Golman notes, China may turn to more policy-driven public investment around March – when some Covid-related restrictions and production cuts are expected around the Beijing Winter Olympics.
Further signs of easing could attract more investors as the two largest economies have differing monetary policy – the Federal Reserve in tighter mode and Chinese officials intent on stabilizing their economies with easing policy and targeted stimulus.
Economic bumps can mean volatility in the near term. But money managers are looking for opportunities among domestically-oriented Chinese companies, aligned with Beijing’s efforts to build “common prosperity” by building out its semiconductor industry, meeting its climate target goals, and strengthening the middle class. are doing.
These companies are better placed on battered Chinese Internet stocks doing business in the US—and that could remain in the crosshairs of geopolitical tensions, such as Alibaba Group Holding (BABA). This is where the repercussions of Beijing’s regulatory action still need to be revealed.
Write to Reshma Kapadia at [email protected]