An achievement of such great magnitude could not fail to be vigorously claimed by Xi Jinping, the Chinese president who recently opened the work of the Communist Party Congress and who is (in all likelihood) about to receive a third and unprecedented term of government.
It is precisely economic issues that are high on the agenda at the Congress as Xi Jinping's China continues to claim, not unjustifiably, its leading role on the global economic chessboard. But what are the prospects for China's economic growth today after a decade of boom, and what are the repercussions for financial markets? For 2022, International Monetary Fund estimates speak of a GDP increase in China of 3.2 percent, far from recession but well below the levels touched in past decades when the economy grew at a pace above 8 percent.
Weighing in are some factors not to be overlooked, highlighted by Dante Roscini, professor at Harvard Business School: "There is a real estate bubble that is a big problem, since two-thirds of Chinese households' wealth is in bricks and mortar," says Roscini. Adding to these factors is the difficult fight against the Covid-19 pandemic: in the People's Republic, unlike in the West, vaccines have not worked very well, and the government continues to address the health emergency with very strong restrictions, which obviously have negative effects on production and growth. Among the critical elements highlighted by Roscini regarding Beijing's economy are also declining foreign investment, rising public debt, high youth unemployment, and declining exports, which, however, the Harvard Business School professor points out, "is partly an intentional phenomenon, because the local authorities have also tried to foster growth fueled by domestic consumption."
Having made these points, however, Roscini does not fail to point out an opposing aspect. Today, beyond the judgment of the Xi Jinping regime, many observers in the international business community nevertheless consider the confirmation of the incumbent president a positive sign for the economy. Indeed, it should not be forgotten that the current president holds power firmly in his hands, but the soundness of his regime depends in large part precisely on economic growth. It is therefore considered likely that, once reappointed, the Chinese leader will continue in a policy of supporting and stimulating GDP.
A similar role is played by China's central bank (PBoc), which, unlike Western monetary authorities, has not adopted restrictive measures. On the contrary, its stance is expansionary, and it now seems inevitable that this will be the case, not least to avoid further problems for the real estate system. This mix of expansionary monetary policy and possible introduction of growth-supporting measures by the government could therefore favor the Chinese equity sector, offering opportunities for investors, after a less-than-exciting year, with the Shanghai Stock Exchange losing about 15 percent over 12 months.
"The Chinese stock market currently has valuations at a discount to the average of the past few years," says Corrado Cominotto, head of Active Asset Management at Banca Generali, who points out that the ratio of stock price to expected earnings of companies is at low levels, averaging 9.3 times. "The bulk of the volatility in the last period," adds Cominotto, "has been caused not only by economic reasons but also by health reasons. China has underperformed the MSCI World index since the beginning of the year. Much of the volatility has been in conjunction with declarations of area closures due to Covid contagions." The head of Banca Generali's Active Asset Management also points out that performance has stabilized since August thanks especially to the returns recorded by class A shares (related to the domestic market). An important "catalyst" for the Chinese market will come in conjunction with the start of the vaccination campaign following the authorization of a vaccine with similar efficacy to American and European ones. That event, scheduled for early 2023, is hoped to end the intermittent lockdowns that have characterized China in recent months. "China," Cominotto further emphasizes, "unlike the main developed countries, has higher than expected Gross Domestic Product growth forecasts for next year in 2022 (4.6 percent in 2023 versus 3 percent in 2022). For these reasons, we are currently more constructive about the future in the Chinese market than we have been in the past."
Corrado Cominotto, head of Active Asset Management at Banca Generali
The Chinese stock market currently has valuations at a discount to the average of the past few years who points out that the ratio of stock price to expected earnings of companies is at low levels, averaging 9.3 times. The bulk of the volatility in the last period, has been caused not only by economic reasons but also by health reasons. China has underperformed the MSCI World index since the beginning of the year.
