China has set a GDP target of around 5% for another year, as analysts fear there will be insufficient policy support to meet the target.
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Shaun Rein, founder and managing director of China Market Research Group, said valuations of Chinese stocks are “far too low” and investors should consider a cautious re-entry into the world’s second-largest economy.
New figures showed China recorded its first month of inflation in February after four months of deflation. The consumer price index rose 0.7% year-on-year after falling 0.8% annually in January.
However, Rein attributed this to the Lunar New Year and stressed that deflation “still hovers over the Chinese economy.”
“However, we are still seeing that Chinese consumers, particularly the wealthy ones, are quite nervous – they are still trading low prices and skipping big items,” Rein told CNBC’s “Squawk Box Europe” on Monday.
“They are cautious about whether or not the government will launch a bazooka-like stimulus – they clearly won’t.”
He noted that global luxury brands may continue to struggle with a lack of demand from China in the short term and that domestic neighborhood electric vehicle (NEV) manufacturers may face a difficult situation.
China’s well-documented economic woes have led to broad declines in China’s stock markets over the past year, as growth was held back by a slump in real estate and exports. The Chinese government is targeting 5% growth in 2024, after reaching 5.2% in 2023.
“Admittedly, last week’s NPC work report committed to “keeping money and credit growth in line with real GDP and inflation targets,” perhaps suggesting that policymakers will try a little harder to keep the money supply and credit growth in line with the real GDP and inflation targets compared to last year to boost inflation toward the 3 percent target,” Zichun Huang, China economist at Capital Economics, said in a research note on Monday.
“But we believe China’s low inflation is a symptom of its growth model based on a high rate of investment. Since reducing dependency on investment is still a long way off, we expect inflation to remain low over the long term.”
“Too early to talk about a bull market”
Although near-term headwinds mean the investment landscape remains challenging, Rein argued that measures taken to reshape China’s economy away from its traditional reliance on real estate and infrastructure are starting to have an impact and the longer-term picture is more promising.
“China’s economy is weak, but not that weak. If you are a multinational company and want to drive growth in the next three to five years, the next place is China. It’s not India – India is only a sixth of that.” GDP of China – it’s not Vietnam. These are small markets, so I actually think investors should take a long-term look at China again, it’s definitely investable,” he said.
“It’s still too early to talk about a bull market, you still have to be very careful, the economy is still weak – don’t get me wrong – again the D word (deflation) hovers over China, there always is still a weak labor market.” but the valuations are too low.”
Despite a slight rebound last month, Hong Kong’s Hang Seng index is still down more than 14% over the past year, and Rein said he personally began investing in Hong Kong-listed A shares about a month ago invest, believing that “valuations are way too low.”
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2024-03-11 23:26:32
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