Business & Investment

Where Investors Need to Look After Covid

RWC partner James John Stone

China performed well in 2020, despite the influence of Covid-19 and the protection tradeist policy of former US President Donald Trump.

The MSCI China Index rose 29.5% in 2020, ahead of the MSCI Emerging Markets Index by 10.9%. Exports and PMI recovered strongly from March as economic activity, occupancy and migration began to improve after the Covid case peaked.

Domestic liquidity and fiscal spending were boosted, facilitating a V-shaped economic recovery. Globally, governments and central banks have announced unprecedented levels of financial and fiscal stimulus measures throughout the year to support the recovery of the global economy.

This response increased the depreciation of the US dollar and capital inflows into emerging markets, including China.

Macroeconomic environment

By 2021, the Chinese economy has normalized and Covid-19 cases have been largely suppressed.

China is developing several vaccines domestically and plans to vaccinate half of its population by the end of 2021. Monetary and fiscal policies may soon normalize.

The PBOC suggests that liquidity conditions are supportive, but not as plentiful as in 2020, given the increase in financial leverage.

Economic growth is expected to be healthy, but the driving force for growth can change. Exports are expected to slow gradually as the Covid-related supply turmoil improves in other parts of the world.

Consumption gains momentum and consumer confidence continues to regain, but savings are the highest ever since Covid.

Infrastructure and real estate investments can be stable. Despite strong market performance last year, valuations are at an attractive level and revenue growth is accelerating.

From a thematic point of view, China’s tremendous growth and continued liberalization have led to the emergence of many different investment themes.

Technology turmoil, travel and healthcare are just a few of the growing areas that offer opportunities for Chinese investors.

Technology turmoil

Although the Chinese economy has been nearly normal after Covid, many labor-intensive industries are under increasing pressure due to an aging population, a declining workforce, and subsequent increases in labor costs.

Companies now have to find new ways to stay competitive in the more difficult labor markets. One such way to increase productivity is technology turmoil.

This space has long-term opportunities in the form of cloud, artificial intelligence, automation and cybersecurity.

Spending in China is expected to increase by 20% in cyberspace, offering the potential for the sector to rival its biggest rival, the United States, as technological turmoil continues to thrive.

Where Investors Need to Look After Covid Where Investors Need to Look After Covid

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