A Spring in the step of 2023

A Spring in the step of 2023

22 January kicked off the Chinese Lunar New Year

This year, it’s the turn of the Rabbit, more specifically, the Water Rabbit. Interpretations of what this foretells in Chinese astrology vary. Rabbits are assigned a personality that is ‘gentle, quiet, elegant, alert, quick, skilful, kind and patient’, amongst other things. Somewhat less charitable descriptions characterise Rabbits as being ‘reluctant to reveal their minds to others’ and having a tendency to ‘escape reality!’

Whatever you believe, the year of the rabbit and the 7 days of Chinese public holidays that herald its commencement will be remembered by the population as being the year when the country finally embraced ‘living with Covid.’ The virus was renamed from “novel coronavirus pneumonia” to “novel coronavirus infection” and downgraded to a Class B infectious disease just in time for the holidays.

Schools are taking a four week break and many migrant workers will be returning home to families. Hotels and large retail outlets will stay open, during the public holidays, and after the strict lockdowns of the ‘zero Covid’ years, could be busier than usual.

Interest about the developments in Covid policy in China resonate far beyond its population and geographical borders. Investors across the globe have been watching, waiting and hoping that China would re-open, the impact of its economy on global growth being so significant.

Realistically, the bounce back will not be linear. Covid has not vanished and as people succumb to infection periods of subdued growth, due to labour absenteeism, should be expected. If other countries are a model for what’s to come, then there will also be fear and the spike in retail activity, during the Lunar holidays, may not be sustained.

Along with the pick-up in mobility and activity in the next few weeks we expect to see increasing infections, prompting a stalling of mobility again in late January/early February, before an improving trend resumes in March. We need to be cautious – Chinese New Year celebrations pose a covid health risk. Despite this, there is reason to be optimistic also. There is no doubt that China’s re-opening will be catalyst for growth, most especially for the pacific region and emerging markets, but globally also.

On the domestic front, we know the government is keen to lift job creation but spending is expected to continue to prioritise healthcare, agriculture and infrastructure investment. The government does not believe in cash handouts for consumer spending and the central bank is expected to maintain a conservative stance on interest rates as inflation will likely start to rise as the economy reopens.

In our portfolios, allocation to emerging markets, including China, is therefore staying unchanged for the moment. However, we will be monitoring developments closely and are positioned to increase investment in the region when attractive new opportunities arise.

Keith Balmer
Portfolio Manager
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