Growth Shock

Not negative, but potentially a significant upside surprise from China, following tentative signs that the country is moving towards a full economic reopening. We alluded to this scenario in our 2023 Outlook.

This weeks’ data dump included:

• The official PMI (purchasing managers’ index) rising to 52.6* in February, the highest reading in over a decade.
• The Caixin/S&P global services PMI increasing to 55.0* in February, the fastest pace in 6 months.
• The sharpest rate of private sector job creation since November 2020.
• New home sales accelerating for the first time in 20 months (see chart below, courtesy of Bloomberg):

Arguably the final data point is the most significant, reflecting (slowly) returning confidence amongst residential buyers reeling from steepest downturn in the property market since the mid-1990’s.

The rebound follows a major central government support package of approx. RMB 1.3T announced in mid-November 2022 to ease extreme liquidity concerns plaguing private developers in the beleaguered sector.

Early days, but the latest evidence suggests that China may rapidly be moving towards full herd-immunity following a swift dismantling of President Xi’s COVID suppression policy in 4Q2022.

Estimates from Peking University in early January put the number of infected at 900m, or 64%, of the total population, with key cities running 80-90% infection rates (these figures have not been substantiated).

Amongst the various data we observe, trends in the residential property sector, including aggregate floor space sold, are likely to provide useful insights into domestic economic activity through the remainder of 2023.