China’s car, internet and property sectors are predicted to rebound in the second half of this year, as Beijing eases up on its regulatory crackdowns and new stimulus measures start to revive the nation’s flagging economy.
The mainland’s car industry is going to benefit from government stimulus measures that support people buying their own cars, while the internet sector will get a boost from the end of a long regulatory storm, according Edmond Huang, head of Hong Kong and China research at Credit Suisse.
“We expect a diverging outlook for sectors in the second half of the year and believe investors should focus on reopening, policy stimulus and regulatory easing as key factors to gauge relative attractiveness,” Huang told the South China Morning Post.
In the latest issue of the Credit Suisse China Market Strategy report, Huang wrote that the country’s car, internet and property industries rank atop a list of sectors expected to benefit the most from the government’s aggressive fiscal and monetary policies, improved consumption and property policies, and market stabilisation efforts.
By contrast, nonbank financial services, energy, healthcare and the condiment sector were ranked lowest on the report’s mainland market strategy scale, which looks into three criteria to assess future performance: China’s reopening, stimulus measures and regulatory easing.
The Credit Suisse report reflects the current pace of recovery for the country’s car, internet and property, as China braces for its lowest quarterly growth rate in more than two years this week.
The economic data for the June quarter is expected to reflect the impact of lockdowns and other stringent Covid-19 control measures on the economy.
China’s recent wave of high Covid-19 infections caused by the Omicron variant triggered mass lockdowns in Shanghai and Beijing, which caused disruptions to the economy in the first half of this year, Huang said. He also indicated that Russia’s invasion of Ukraine and the US Federal Reserve’s decision to significantly raise interest rates have made things more complicated.
A strained supply chain caused China’s car industry to lose another 400,000 vehicles in production in May, as carmakers were unable to churn out enough units to cater to market demand.
In the internet sector, major players such as TikTok owner ByteDance, video gaming market leader Tencent Holdings and e-commerce giant Alibaba Group Holding, which owns the Post, came under pressure to reform their business models amid Beijing’s series of crackdowns.
The Credit Suisse report, however, found the first-quarter results of Chinese internet companies were better or in line with expectations, mainly because of cost optimisation.
Companies like short video app operator Kuaishou Technology and online retailer JD.com show positive growth potential, the report said. It suggested that continued cost optimisation by internet firms is likely to bolter their margins, enabling them stay resilient and ready to capture opportunities when the economy stabilises and consumer demand rises.
Chinese property stocks, meanwhile, have suffered from the country’s “three red lines” policy, which was implemented in August 2020 to control excessive leverage in the industry. This policy has shut out many developers from lending facilities and the bond markets, amplifying the credit crunch at a time when the economic slowdown is crushing domestic home sales.
In the second half, pent-up market demand amid the government’s policy relaxation and stabilisation in real estate prices will enable the property sector to return to positive growth, according to Credit Suisse.
Still, Huang said China’s measures to gradually open up measures mean that industry performance in the second half will be uneven. He said there are still risks of “bumps”, as the economy gradually recovers.
“Our conclusion is that as long as the zero-Covid policy is still in place, the path to economic recovery would be a winding one,” Huang said.
Singaporean lender DBS, meanwhile, prefers price setters and commodity-related sectors to ride inflationary tailwinds, according to the bank’s latest CIO Insights report.
DBS is also bullish on China’s performance in the second half on the back of government policies that support growth and improved business regulation.
For multinational financial services group UBS, it said China’s property market has likely bottomed, suggesting a recovery in the second half. It also expected China’s e-commerce platforms to recover on accelerated consumption, as the pandemic threat retreats.
China’s equity market will continue to rebound as a result of recovering macro economy, easing regulation and potentially more stimulus in the pipeline, said Hu Yifan, chief investment officer for Greater China at UBS Wealth Management in Hong Kong. South China Morning Post