Bank of Singapore’s head of investment strategy Eli Lee said the growth outlook for China would be muted in 2022, creating a challenging backdrop for its equity markets which he called «the elephant in the room».
«The long-term outlook of China remains bright but the short-term tradeoffs are causing a very muted growth outlook this year,» said Bank of Singapore’s Eli Lee in a recent virtual briefing.
According to Lee, short-term trade-offs – such as slowing growth – have been driven by Beijing’s longer term goals such as curbing excessive leverage, promoting key technologies, improving environmental sustainability and countering vulnerabilities against external threats.
«Beijing’s strategic direction prioritizes long-term goals […] but what this is causing is that it is trading these long-term goals against short-term costs.»
Short-Term Tradeoff: Slowdown
«Since last summer, China’s economy has actually slowed sharply,» Lee explains, citing lower consumption from lockdowns, lower industrial production from power cuts, lower property investments from regulatory tightening and lower infrastructure spending from slowed government lending.
As a result, Bank of Singapore forecasts that China’s growth will slow from 7.9 percent last year to 5.5 percent in 2022.
«The Elephant in The Room»
This further places the spotlight on the question of how to manage Chinese exposure, especially in light of a $1 trillion meltdown of its tech stocks last year.
«Obviously, Chinese equities have been the elephant in the room for many of our investors,» Lee explains.
«[The economic outlook] underpins our neutral weighting currently on a top-down basis in the Chinese markets and Asia ex-Japan markets.»
Not All Equal
From a bottom-up basis, in contrast, Lee notes that there will be attractive opportunities for positive performance from select sectors with aligned policies, especially in light of a new monetary easing cycle by China’s central bank which has historically led to positive equity market performance in the country.
Sectors that could benefit from Beijing’s long-term strategic goal include artificial intelligence, 5G, renewable, infrastructure and new energy vehicles.
