A glance at China’s economy today presents several dilemmas, especially for investors trying to gauge future growth. If the government sticks to the play of infrastructure investment to spur growth, debt problems will worsen. The real estate market push is faltering and the real estate bubble remains unresolved. Rate cuts – while US prices rise – and pressure to stem the flow of money out of the US dollar is stronger. With little room for policymakers to act and the geopolitical situation hovering, a move to the defensive names in healthcare and insurance could be a boon for investors. It’s something consumers want to buy with the money they have, when China ended its Covid prevention measures late last year. As for delivering more cash to consumers at scale, official statements over the past two years make it clear that top leaders still need convincing. Exports are falling due to global weakness, not something China can control. The problem today, which China has acknowledged, is a lack of confidence. That can cause the economy to plunge in a vicious cycle. And it could easily fall back on a virtuous cycle. “If the economy is bad, confidence will be weak. If confidence is weak, spending will be low,” said Michael Pettis, a professor of finance at Peking University. If “spending is low, the economy is doing poorly.” As a result of the ongoing uncertainty, companies in China are pulling back on future hiring and investment. They are also cutting debt — and paying more attention to cash flow, according to S&P Global Ratings. “If all businesses do this, growth won’t be fast, [but] quality will be better,” Chang Li, director of corporate ratings at S&P, said in Mandarin translated by CNBC. “Low growth is a long-term trend for the future”. high-tech, manufacturing and renewable energy. The electric car industry – which includes vehicles, charging stations and the power grid – is the only area where China’s central government has announced stimulus measures. The most specific to date, mainly in the form of extended tax breaks. As for other details, important government meetings coming up could make those clearer, at least domestically. .There is a Politburo meeting of top officials at the end of July. Separately, a twice-decade government conference on financial work could be held soon — this conference has been canceled. long delayed since slated for last year.It’s also worth diving into sectors, picking those that can thrive despite the lackluster economy. The country over the past few months from Covid has had distinct characteristics that are not easily grasped in general terms, Andrew Tilton of Goldman Sachs and a team pointed out at the end of May. Analysts say Covid has hit the services sector hardest, and its recovery has only benefited specific companies – not networks of businesses in the supply chain. They also estimate that in a consumer-centric recovery, Chinese companies listed on the mainland and Hong Kong stock exchanges will experience revenue growth that is 8% lower than the recovery. similar size due to investment. That means the winners of China’s recovery are likely to be hidden under broader market performance. One month on from the Goldman review, China’s economic trajectory remains the same. Policymakers only cut some interest rates and announced support for electric cars. Citi in June cut its full-year GDP forecast, as did other investment banks. “Risk is building up making weak links in the economy increasingly painful,” Citi analysts said in a note on Tuesday. “If weak confidence becomes too entrenched, it could self-fill and derail the economic recovery.” In this environment, Citi stock analysts prefer healthcare and insurance stocks, noting that they are less affected or even supported by slower economic growth. Their favorites for the second half of the year are insurance giant AIA with a target price of HK$106 and Shenzhen-based medical device company Mindray with a target price of RMB450. bad. That’s about 34% and 50%, respectively, above where the stock ended Friday. AIA is listed in Hong Kong, while Mindray is listed in Shenzhen. — Michael Bloom of CNBC contributed to this report.
