China’s economy has been the first to embark on the recovery channel. What are the disturbing factors and assets worth overweight allocation in the economic development in the second half of the year?
On July 21, Huang Wentao, CO head of China Securities Co.Ltd(601066) securities research and development department and chief of macroeconomic and fixed income, predicted the economic trend in the second half of the year. He believes that the worst time of China’s economy has passed, and the recovery trend is certain, but there will be some twists and turns. There are four main lines that will deeply affect the rhythm and process of China’s economic recovery in the second half of the year. At the same time, China also needs to overcome four unbalanced factors, such as lower actual growth rate than potential growth rate, unemployment, lagging growth rate of service industry and trade deficit.
From the perspective of capital market, the stock market should perform better than other assets in the second half of the year, followed by gold. In addition, the bond market in the third quarter should still be dominated by shocks.
four disturbing factors affecting China’s economy
In the second quarter of this year, China’s GDP grew by 3.2%, an increase of 10 percentage points compared with the first quarter, and the recovery is very obvious. So, what is the trend of China’s economy in the third and fourth quarters of this year and what disturbances may be encountered?
Huang Wentao said that throughout the year, China’s economic recovery is the direction, but there are also some twists and turns. The biggest tortuous factor comes from overseas. As one of the world’s largest export-oriented economies, China’s exports accounted for about 17% of GDP at the end of last year. The evolution of overseas conditions may profoundly affect the process of China’s economic recovery in the second half of the year.
In the second half of this year, the overall international situation may show a pattern of “three lows and two highs”. The three lows refer to low growth, low inflation and low interest rates, and the two highs refer to high debt and high risk.
Huang Wentao believes that there are four main lines that will deeply affect the rhythm and process of China’s economic recovery in the second half of the year, including the epidemic, China US relations, negative global economic growth and the wave of debt defaults of some sovereign countries.
In terms of the epidemic situation, there have been some small waves in some parts of China recently, but foreign countries are not optimistic. Some emerging market countries even risk losing control. As emerging markets and developing countries account for 40% of the global GDP, if the epidemic situation in these areas is not controlled, it will not be good news for the world or China. In fact, China’s exports to countries and regions with serious outbreaks have declined.
Sino US relations have become even more pessimistic recently. The reasons may be in two aspects: one is to comply with the public opinion of the United States and China, and the other is for the presidential election. It can be predicted that in the third and fourth quarters of this year, in order to transfer China’s risks and contradictions and win votes, the United States will not rule out maligning China in finance, science, technology and industry. China US relations are relatively severe. However, as two big countries with close global economic ties, long-term struggle and struggle without breaking will be a long-term trend. It is believed that Sino US relations may improve after the US election.
From the perspective of global economic recovery, this year’s negative growth of global GDP is a high probability event. The world is facing the most serious economic recession since the great depression from 1929 to 1933. However, it can be seen that China’s economy may grow by about 2.5% this year, which is unique in the world.
The fourth main line is that the global emerging market countries will face the risk of sovereign debt default. Now Lebanon and Argentina have defaulted. According to our judgment, some countries in the next 28 emerging market countries may have the risk of sovereign debt default in succession. Whether they will change from black swan to gray rhinoceros needs further observation.
the stock market will perform better than other assets in the second half of the year
In addition to the external environment, there are also some uncertainties in the pace of China’s economic recovery. According to the economic data in the first half of the year, industry and real estate performed better than expected, and manufacturing investment and consumption were significantly lower than expected.
Huang Wentao believes that four imbalances need to be overcome in the process of China’s economic recovery in the second half of the year. First, the actual growth rate is lower than the potential growth rate. It is estimated that China’s potential growth rate is about 6%, which has reached 3.2% in the second quarter, but it is still lower than the potential growth rate; Second, the problem of structural unemployment is more serious; Third, industrial recovery is faster than the growth rate of service industry; Fourth, there is an internal and external imbalance. China’s current account deficit occurred in the first half of the year.
On the question of when the actual growth rate can catch up with the potential growth rate, Huang Wentao said that due to the strength of the industrial field, China’s economy showed a significant upward trend in the second quarter. The GDP growth rate reached 3.2% in the second quarter from – 6.8% in the first quarter, 5% in the third quarter and 6% in the fourth quarter, that is, China’s actual growth rate can reach the potential growth rate in the fourth quarter. In this way, the annual GDP growth rate is about 2.5%.
In terms of vertical comparison, China’s GDP must have improved quarter on quarter, which is the biggest fundamental aspect for investment and economic situation judgment in the second half of the year; In horizontal comparison, China’s economic growth rate of + 2.5% is also commendable in the case of negative growth in the world.
The key to the recovery in the second half of the year is the service industry. Now 60% of China’s GDP comes from the service industry. The impact of the epidemic is precisely the service industry. Recently, aviation, tourism, transportation, catering and accommodation have obviously not reached the normal level, which is exactly the focus of the economy in the second half of the year.
From the perspective of investment, consumption and export, not all sectors will recover simultaneously, but should recover in rotation. Infrastructure and real estate took the lead in recovering, and exports exceeded expectations. Manufacturing investment and consumption may be the last sector to recover in the whole process of rotational recovery.
From the perspective of inflation, China’s economy does not have the conditions and basis for inflation, but should prevent deflation. At present, all countries in the world are releasing money, which will increase the price of some assets or a kind of assets, or form a bubble. Investors can properly enjoy the bubble of asset prices and participate in the rising process of asset prices appropriately.
From the perspective of capital market, the stock market should perform better than other assets in the second half of the year; In addition to stocks, gold is recommended, because from now on, China US relations may fluctuate in the future, monetary policy is still in a loose range, and gold should continue to reach new highs; In addition, we believe that the yield of the bond market has reached a phased top, which should not be the starting point of the bear market. The third quarter should still be dominated by shocks.
(brokerage China)
