No Second Wave In China As Economy Gains More Traction

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No Second Wave In China As Economy Gains More Traction

Fears of a second wave in the U.S. and Europe have not been born out in China to any serious extent, with around two dozen cases propping up recently in Hubei, a province the size of France.To get more China economy news, you can visit shine news official website.

China has been open the longest and the number of cases are not measurably trending higher. Good news. China looks to be on the mend.

China’s second quarter economic data will be worse than expected a month ago, but that is mainly because its main markets are in quarantine. Things like local auto sales are down, but only down around 10%, says Ajit Agrawal, a strategist for UBS. In recent days, “global trade data is showing signs of stabilization for exports and imports to Europe,” Agrawal says.

Year-to-date, the XTrackers China CSI-300 (ASHR) is down 5.53%, beating the S&P 500, which is down 10.6% and the MSCI Emerging Markets Index, which is down 19.59% as of Friday’s close.Some clues: Barclays’ weekly data tracker shows the recovery in China’s services sector accelerated over the Labor Day of May 1 through 5 and is approaching last year’s levels already. This is good news for China investors.

Data for the holiday showed some rebound in domestic tourism compared to earlier this year, but that’s because of previous lockdown orders. The year-over-year growth rate remains in contraction.Tourism is expected to be the last to heal up from the coronavirus due to extra caution being taken among the public, coupled with existing restrictions on inter-province tourist groups. Still, Shanghai Disneyland is back open today, a sign that China is definitely on the mend.

The number of reported new infections have been declining to near-zero nationally over the past week. All high level public health alerts have been removed.

China tiptoed back to work outside of Hubei province, the epicenter of the global pandemic, in March. By April, China was nearly fully functional, but nothing like it was a year prior. If one takes April as the beginning of the end of the lockdowns, then it took roughly six weeks for a sense of normalcy to return. Masks in public are still required.

This week, China releases April activity and credit data. Barclays analysts led by economist Jian Chang in Hong Kong expect a contraction in retail sales to narrow to just 5% lower in April from around a 16% contraction in March, though that will mostly be thanks to housing-related sales.

Fixed asset investment growth should fall by around 8% in April from the 16% drop in March versus a year ago. The numbers are negative, but they are moving in the right direction.

Recent headlines and rhetoric from the Trump Administration to somehow punish China for being slow to warn the world about a new SARS discovery in its Hubei province late last year increased the risks of a re-escalation of the trade war, something that has been off radar due to the impeachment in January, and later the outbreak.The renewed tariff threat weakened the yuan to 7.07 to the dollar, its weakest level since the Great Financial Crisis. The format and timeline of any punitive measures remain uncertain, with the developments still fluid.

“We are passing through the eye of the needle,” says Sebastien Galy, the senior macro strategist for Nordea Asset Management. The coronavirus is not disappearing, and deaths are still occurring because of it in the U.S. and Europe, but governments are realizing that so long as hospitals are protected from a surge in patients suffering from COVID-19, then people can get back to some semblance of normalcy, as China began doing last month.

For the markets, a lot depends on how the U.S. economy picks up in the weeks ahead. That will also provide a lift to China as the U.S. is its biggest trading partner.

“If you look at China, their manufacturing is driven a lot by corporate demand. But if you go to a consumption economy, like here, it depends on the social norms, it depends on individual demand,” says Agrawal. “We won’t know the answers to that right away. It depends on whether there will be a changing of behaviors in such a way that service sector jobs simply do not recover this year.”