Weekly Update: Davide Chiantore on the Markets in China
As the elections in China approach, there are thought to be interesting investment opportunities throughout South-East Asia. This is because the Chinese government will tend to ease the tight restrictions that have been in place in recent months precisely to try to arrive at the elections in a more calm and peaceful climate.
Interesting opportunities can be seen in both equities and bonds in almost all sectors. Without a doubt, the markets that have been most penalized in recent months, such as China – especially Hong Kong- could have some notable rebounds.
Above all, consumer staples sectors, i.e. companies such as Alibaba, which have had very low performances in this last period, could particularly benefit from the re-opening, as well as the easing of restrictions and the diminishing of the climate of tensions that had been created in recent weeks in the country.
It is thought that this factor could counterbalance the negative aspects of what is happening in Ukraine, where an end to the war is not in sight and tensions remain very high.
On the one hand, we have two major issues: the Russian-Ukrainian war and rising rates in the Occidental countries. On the other hand, we have a boost that could come from a rebound in the Asian markets or at any rate a climate that tends towards higher prices, therefore more favorable to investment consumption.
The slowdown in consumption that there has been due to the lockdown will be partially offset. This is because Chinese households that have been under lockdown have increased their savings. It is therefore believed there will be at least a partial outburst; a race to recover lost consumption.
It is expected that there could be major increases in consumption sales by companies in all areas that had been locked down during this period.
The price of commodities and oil in particular are already signaling these upward price tensions, precisely because of a forecast of consumption growth, which with regards to oil is already coming true.
So, the scenario is changing compared to the last few months and therefore a major rebound is expected, not only in consumption but also in production.
A fairly rapid, constant easing is expected in every area that was experiencing shortages, such as electronic components, automotive components and pharmaceuticals.
Between now and the end of the year and the beginning of next year there will be a major restart in the manufacturing industries. We will see overcapacity in some cases because in recent months many plants have been upgraded. There may be a phase next year where we will find ourselves in the opposite situation to the current one: where many companies in the West will have overcapacity compared to the demand for goods, products and services. This demand is expected to fall also due to the rise in interest rates and the increase in inflation, which do not favour consumption, at least in the short and medium-term.