ZT: China's Macroeconomic Outlook

China’s rapid pullback of its Zero-COVID policy will likely have major ramifications for the world’s second largest economy. Most recently, news that China will no longer subject inbound travellers to quarantine with effect from 8 January 2023 puts the country on track to emerge from its approximately 3 years of self-imposed global isolation. This recent move can be interpreted as a step towards a full border re-opening.  

中国迅速取消清零政策，可能会对这个世界第二大经济体产生重大影响。报道称，从1月8日起，中国将不再对入境旅客进行检疫，这使得中国有望结束大约3年的自我隔离状态。最近的这一举措，可以被理解为中国朝着全面重新开放边境迈出了关键性的一步。 

 

 

What can we expect?

Transitional pains in the form of rising COVID cases which could result in labour shortages in H1 2023, would be expected. We may also see foreign governments restricting entry of travellers from China out of fear of infections spreading; with the US, UK, Australia, and Canada recently joining a growing list of nations requiring COVID tests for travellers from China. Specifically, with effect from 5 January 2023, the US requires inbound Chinese travellers to show a negative COVID test prior to entry. We therefore expect the re-opening process to be a gradual and bumpy one in H1 2023, with the upcoming Chinese New Year serving as a major test of the government’s resolve to proceed with their policy shift. We should have greater clarity regarding the trajectory of China’s re-opening after the Chinese New Year. We expect Chinese markets to remain volatile in H1 2023.  

 

接下来我们期待什么？

因中国更有可能遇到过渡期的痛苦，也就是新冠病例增加，这可能导致2023年上半年的劳动力短缺。我们还可能看到外国政府因担心感染扩散而限制来自中国的旅行者入境；美国、英国、澳大利亚和加拿大最近将来自中国的旅行者加入了需要进行核酸检测的国家名单。具体而言，从1月5日起，美国要求入境的中国旅客在入境前出示核酸检测的阴性证明。因此，我们预计在2023年上半年，重新开放的过程将是一个循序渐进且并不容易的过程，中国政府在进行政策转变时面临的主要考验是即将到来的春节。春节过后，我们应该对中国重新开放的轨迹有更清晰的认识。我们预计中国市场在2023年上半年将保持波动。 

 

Nevertheless, if the government is able to prevent infections from getting out of control, we believe the re-opening will result in short-term pains but bring long-term gains to the economy and stock markets. We maintain our view that a full reopening could begin in H2 2023, driving a subsequent stock market recovery well into 2024; with H1 2023 presenting a good opportunity for investors to buy into Chinese stocks at more attractive valuations. Growth will be supported by the recovery of the tourism industry as the economy returns to normalcy, as well as international events in 2024 such as the Formula One race in Shanghai. Downside risks lie in a potential policy backtrack due to a surge in COVID cases on the back of increased domestic travel during the Chinese New Year. 

尽管如重新开放将带来短期的痛苦，但如果中国政府能够防止感染失控，那么我们相信，这将会为经济和股市带来长期收益。我们将保持我们的观点不变：全面重新开放可能在2023年下半年开始，直到2024年，将会推动中国股票市场进入回恢复上升期；2023年上半年是投资者以更具吸引力的估值买入中国股票的好机会。随着经济和旅游业的全面复苏，加上包括即将于2024年在上海举行的一级方程式赛车比赛在内的国际赛事等，无一例外地在支持中国投资市场的增长。但需要注意的是，下行风险在于，由于春节期间中国国内旅行增加，新冠病例激增，可能会出现政策变动。 

 

Ultimately, we believe a paradigm shift in the government’s approach towards the pandemic and a renewed policy focus towards reviving economic growth brightens the equity outlook for China in 2023. 

归根结底，我们认为，由于中国政府在应对新冠疫情方面的政策转变和以恢复经济增长的重点政策，使中国2023年的股票市场前景更加光明。 

 

Which China stocks should we look out for?

Additionally, should the economic re-opening proceed smoothly, we foresee a surge in travel demand and revenge spending by Chinese consumers. Following the removal of quarantine restrictions for inbound travellers, data from Trip.com Group Ltd showed bookings for outbound flights from mainland China jumped by 254% while bookings for inbound flights increased by 412%. Similarly, online searches for overseas destinations surged by about 1,000% to hit a 3-year high. We favour stocks with exposure to the aviation, tourism services, hospitality, and the retail industry. Stocks we like are Air China Ltd (SSE), Lijiang Yulong Tourism Co Ltd (SZSE), BTG Hotels Group Co Ltd (SSE), China Tourism Group Duty Free Corp Ltd (SSE) and Shanghai Yuyuan Tourist Mart Group Co Ltd (SSE).

 

我们应该关注哪些中国股票？

此外，如果经济重新开放进展顺利，我们可以预见中国消费者的旅游需求和报复性消费将激增。在取消对入境旅客的核酸检测限制后，携程集团有限公司的数据显示，中国大陆出境航班的预订量猛增254%，入境航班的预订量增加412%。与此同时，使用者对海外目的地的在线搜索数据激增约1,000%，创下三年来的新高。因此，我们建议关注航空、旅游服务、酒店和零售业的股票。我们建议关注的股票有：中国国际航空股份有限公司，丽江玉龙旅游股份有限公司 ，北京首旅酒店(集团)股份有限公司，中国中免股份有限集团和上海豫园旅游商城股份有限公司。 

We also favour cyclical and economically-sensitive stocks that should benefit as domestic and international business activity picks up in H2 2023. We like companies operating in the industrials, tech, and consumer discretionary sector, as well as stocks that generate at least 30% of their revenue from outside the Greater China region, such as COSCO SHIPPING Holdings Co Ltd (SSE), Zhengzhou Coal Mining Machinery Group Co Ltd (SSE), Semiconductor Manufacturing International Corp (SSE), Triangle Tyre Co Ltd (SSE) and Xiamen Intretech Inc (SZSE).

 此外，我们还看好周期性和对经济敏感的股票，这些股票应该随着国内和国际商业活动在2023年下半年的回升而受益。我们喜欢在工业、科技和消费类行业经营的公司。我们找出了那些至少有30%的收入来自大中华区以外的股票供参考： 中远海运控股股份有限公司、郑州煤矿机械集团股份有限公司、中芯国际、三角轮胎股份有限公司和厦门盈创科技。