A near-term rebound in China is unlikely, according to J. Safra Sarasin’s chief investment officer Philipp Baertschi, with the grueling zero-Covid policy expected to remain in place until mid-2023.
Most forecasters expect China’s economy to slow to approximately 3 percent this year with the zero-Covid policy widely accepted as the headline driver. While many nations elsewhere have moved on and fully reopened, Beijing is expected to persist with ongoing restrictions and lockdowns, at least in the short term, further dragging on growth.
«For the Chinese economy, we’ve actually seen reasonably robust demand from outside in net exports but quite weak domestic demand. One of the key reasons behind that was the zero-Covid policy […] and this is still ongoing,» said J. Safra Sarasin’s CIO Philipp Baertschi in a recent media briefing attended by finews.asia.
«The near-term outlook is quite challenging. Consumer sentiment, income expectations and employment expectations have fallen quite sharply. We think there is limited appetite for now to spend and to consume. So, we really have to wait and be patient.»
Q2 Reopening Call
Still, Baertschi is optimistic about a turnaround further down the line with signs of government support in the property sector, especially for construction firms, and recent tweaks in the zero-Covid policy towards slight loosening.
«We expect a real reopening towards the second quarter next year,» said Baertschi. «There is some hope that the economy will reaccelerate at some point over the next two quarters but we probably can’t hope for too much during the winter months, [even] without Covid.»
Investment Strategy
Coupled with recessionary and inflationary pressures in the US and Europe, J. Safra Sarasin is adjusting its investment strategy towards a more defensive tilt.
As a result, the Basel-based private bank has shifted its asset allocation strategy from the so-called theme of TINA («there is no alternative for equities») to BOB («bring on bonds»). This is due to the improved risk-return profile of government bonds from rising rates and a weak equity outlook from consumer price pressures as well as a likely decline in corporate margins.
«A global recession, in our view, is the most likely outcome. We expect a normal recession, not an especially deep one,» Baertschi added on the outlook for next year.
