After leading the world in stock market performance last year, China has started 2021 on a strong note. Its CSI 300 index, which tracks the 300 biggest stocks on the Shanghai and Shenzhen stock exchanges, surpassed its 2015 peak on January 5, reaching its highest level in 13 years. Is this bullish start a sign of another record year for Chinese equities?
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The macro environment certainly looks supportive of further gains in Chinese equities this year. China’s gross domestic product is on track to return to its pre-pandemic growth trend of around 6 per cent year on year in the fourth quarter of 2020. That robust pace should carry on through the year. Markets expect the Chinese economy to continue to lead the global recovery and expand by more than 8 per cent this year, which suggests a healthy earnings recovery for Chinese companies.
The private sector is likely to increasingly take the lead from the public sector in spurring China’s economic growth. Infrastructure investment was a key driver of China’s growth last year, supported by strong fiscal stimulus. But increasingly, private-sector consumption and investment will play a more important role.
The emergence of several Covid-19 clusters in China recently have dampened services consumption, but this should normalise as vaccines are rolled out and social distancing measures are loosened in the coming months. Household income is likely to continue to improve, especially for migrant workers, who account for a significant share of services sector employment.
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Wuhan’s low-income workers struggle to find jobs eight months after Covid-19 lockdown lifted
Wuhan’s low-income workers struggle to find jobs eight months after Covid-19 lockdown lifted
Consumers are also expected to spend some of the precautionary savings built up last year, as improvements in the coronavirus situation boost confidence. Manufacturing investment growth is likely to improve further this year, helped by a reduction in US-China trade uncertainty with the incoming Joe Biden presidency, greater control over the coronavirus and recovery in corporate profitability.
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China’s export performance was one of the bright spots last year and will remain robust this year as global activity and trade recover.
