Morgan Stanley: Investors shouldn't overlook China's economic rebound

By CGTN

09:24:00, Oct. 30, 2020


China is the only country in the G20 to have already emerged from recession with 4.9 percent year-on-year growth in the third quarter. It now accounts for 40 percent of global GDP growth, more than the U.S., Europe and Japan combined.

China may be the most important driver of global growth, said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, on Monday in a report, pointing to the speed and durability of the country's economic turnaround.


China is the only country in the G20 to have already emerged from recession with 4.9 percent year-on-year growth in the third quarter. It now accounts for 40 percent of global GDP growth, more than the U.S., Europe and Japan combined.


Shalett said China is less dependent on exports, which are now only 17 percent of GDP, down from 35 percent in 2007.


U.S. imports of Chinese goods comprise only 3 percent of the country's total GDP, down from 12 percent in 2008.


"We see room for more growth as per capita disposable income and consumption spending return to their long-term growth trend, after a vaccine is available. Vacation-related spending is still off by close to 60 percent currently in China," Shalett stated.


Sales of consumer goods, a proxy for consumption in China, rose across the board at the end of the third quarter, led by auto purchases, as household incomes returned to positive growth and employment conditions improved after being slammed by the COVID-19 epidemic.


Still, Chinese spending on services lagged that on goods, and sectors such as hospitality and catering sector fared particularly badly due to social distancing rules, restrictions on operating hours, and caps on hosting capacity.


But with the easing of curbs gathering pace in the third quarter, the hospitality sector is poised to accelerate its recovery. Already, its contraction in output narrowed in the third quarter versus the previous three months.


"China appears to have ample fiscal and monetary policy flexibility," Shalett said. While the U.S., Europe and Japan pursued policies that saw combined fiscal and monetary stimulus move toward 30 percent of GDP, China's policy expenditures have been about 6 percent of GDP so far.


China's 10-year bonds are yielding nearly 3.2 percent, the widest premium in 15 years to the U.S. 10-year Treasury with less than 1 percent yields. "China's interest rate and currency dynamics remain attractive," Shalett added.


The yuan is now at the strongest level since 2018, pointing to the ongoing internationalization of the renminbi, and 10 percent of global reserves could be held in the Chinese currency by 2030, according to Morgan Stanley's estimate.


Shalett mentioned that China's A-shares are up 24 percent year-to-date, nearly three times more than the S&P 500.


Economists from Morgan Stanley now forecast 2.3 percent GDP growth for China, and 3.7 percent contraction for the global economy.


(With input from agencies)

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