Quick Bites | Activity rebounds in China

Source: Goldman Sachs

As illustrated in the Goldman Sachs chart above, economic activity bounced sharply in January as the country opened for business following almost 3 years of on-and-off lockdowns due to the pandemic. This is good for world growth and good for Australian commodity exports.

The MSCI China index has surged 50% since the end of October when rumors of a potential easing of China’s strict zero-covid policies began circulating. Since then, China has moved quickly to reopen its economy. Beijing has also softened its regulatory assault on Chinese technology companies and the property sector. Chinese stocks, however, are still down more than 40% from their peak in early 2021.

Foreign investors are starting to come back, and hedge funds have begun buying Chinese stocks again. Hedge funds had a net exposure of 13% to Chinese stocks in January, versus just 7% at its lowest point last year, according to Goldman Sachs.

China’s shift back to pro-growth policies has been welcomed by the markets. To sustain the rally, investors need to see that China has more things going for it than just the post-Covid bounce. However, ongoing political tensions with the US over “spy balloon” controversies will not help.

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