Post-Covid-19, China’s markets are back to square one

China is expected to be the only G20 nation to grow this year

(Image credit: © Yongyuan Dai/Getty Images)

published 19 December 2020

2020 has been a landmark year for Chinese markets, say Hudson Lockett and Thomas Hale in the Financial Times. Foreign investors have bought more than ¥1trn (£113.5bn) of local assets. Onshore bonds have been attracting particular attention, and little wonder: the US ten-year Treasury bond yields 0.9%, compared to 3.3% for the Chinese equivalent. There were ¥900bn (£102bn) in net foreign inflows into bonds during the year through to the end of November. Local stocks also took in ¥170bn (£19bn) from overseas buyers. The CSI 300 stock market benchmark is up more than 19% this year.

The world’s sudden need for masks and gel, coupled with demand from locked-down workers for IT equipment, has played to the country’s “manufacturing strengths”: medical equipment exports rose 42.5% on a year before during the first 11 months. Electronics exports rose 25% last month on the year.

These new “global consumption patterns” should unwind next year as a vaccine is rolled out, Julian Evans-Pritchard of Capital Economics told the South China Morning Post. Yet lower exports will be offset by strengthening domestic activity. The Chinese economy has continued to grow “across all fronts”: retail sales rose 5% on the year in November, while industrial production gained 7%.

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China is expected to be the only G20 nation to grow this year. By the end of 2021 the economy could be the same size as it would have been if the pandemic had never happened, says Simon Cox in The Economist. Policymakers have resorted to a familiar infrastructure-first stimulus playbook this year, leaving efforts to bring down debt levels to one side. 2021 will thus see the country confronting the same problem it had before Covid-19: how do you “deleverage the economy without killing growth”?

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.