China is positioned to lead Asia’s economic recovery from the coronavirus

17/06/2020
China is positioned to lead Asia’s economic recovery from the coronavirus

Summary

The coronavirus pandemic applied a sudden brake to China’s growth story, as it did to most economies around the world. But there are signs that China could be ready to lead the way out of the downturn and resume its long-term growth trajectory.

Key takeaways

  • As the first country to face the coronavirus crisis, China looks set to be the first country in Asia to emerge from it, as business activity returns to the levels seen before the outbreak
  • The Chinese government has shown itself willing to make the necessary policy interventions to keep the recovery on track and ensure the country resumes its long-term growth trajectory
  • China and its nearest neighbours, such as Taiwan and South Korea, are best positioned for recovery, while south and south-eastern Asian economies face further challenges
  • Continuing trade tensions with the US still threaten to hamper China’s recovery, but stronger regional trading relationships should limit the impact

Following the slowdown triggered by the coronavirus outbreak, China’s economic recovery continues to progress as companies get back to work, quarantine measures are relaxed, and people venture outside. A resumption of “business as usual” among Chinese consumers will be essential to any recovery. Domestic demand will be needed to drive Chinese growth, particularly as demand for Chinese exports may remain subdued because of the crisis. While the daily cases of coronavirus infection in China have fallen to single digit levels, many other countries – notably those in south and south-east Asia – are still seeing hundreds and thousands of daily new infections, which is restricting economic demand.

What drives economic recovery from coronavirus?

In China and wider Asian economies, the pace of recovery from the outbreak will be determined by four key factors: the stage of the pandemic, institutional capacity to manage and contain the virus, central banks’ capacity and willingness to provide stimulus, and each economy’s openness towards external trade.

Daily confirmed infection cases in Asia

chart-china-is-positioned-EN 

Source: Johns Hopkins University, MoH, MOPH, KCDC, Worldometers.info, AllianzGI Economics & Strategy, as of May 2020.

As the chart shows, in May the Chinese economy was already at a more advanced stage of the outbreak than any of its peers. Meanwhile, the government has been decisive in acting to bring the virus under control and looks set to continue making policy interventions to support China’s economic recovery. At the annual National People’s Congress meeting in May the Chinese government announced a widened fiscal deficit target to support the economy. In a bid to shore up employment, the government pledged RMB 4 trillion of tax exemptions for factories and retailers, waived contributions to social welfare funds, and reduced bank interest rates and utilities costs.

The government had already announced a new round of fiscal and monetary policy easing, introducing RMB 3.75 trillion of special local government debt and RMB 1 trillion of special treasury bonds. Meanwhile, the People’s Bank of China (PBoC) further lowered the reserve ratio required of banks, to provide greater liquidity and lending to the country’s small and medium sized businesses.

While supportive, these moves fell short of the expected levels of intervention, as China resists taking on too much debt as it did after 2008. However, the government has made it clear that it has further fiscal, financial and social security policies in reserve that it will roll out “without hesitation” if it considers further intervention necessary.

Beyond the coronavirus pandemic, the main risk facing China (as well as wider Asian markets and global trade) could be the resurgence of trade tensions with the US. President Trump may put China at the centre of his re-election campaign. Any heightened rhetoric or increased tariffs could be negative for market sentiment.

How will other Asian economies fare?

Looking at other Asian economies, South Korea and Taiwan are also at an advanced stage of the pandemic, with a low risk of a second wave outbreak. As such, we expect them to follow close behind China as their economies gradually recover. We expect south and south-east Asian economies – in particular India, Indonesia and the Philippines – to endure further difficulties before recovering. This is mostly due to the ongoing spread of the pandemic in those nations, which are still seeing a rising number of new infection cases. We do not think the fiscal stimulus provided by these economies will be enough to offset the drag caused by the coronavirus outbreak.

Stock markets have rebounded, but expect more volatility ahead

Equity performance within each country is likely to be influenced by the expected severity of the pandemic, along with the future likelihood of idiosyncratic risks (such as a systemic credit default), and the risk of a negative geopolitical event with the potential to derail any recovery. Again, China scores well on these metrics, along with Taiwan and South Korea.

However, equity prices within these markets have already recovered significantly since the lows of late March, so investors should exercise caution and expect volatility going forward. When it comes to fixed income investment, we see a low likelihood of restructuring among Asian public debt so would recommend investors to overweight sovereign and quasi-sovereign credit. These securities were sold off due to market concerns, causing spreads to widen above historical levels which offer good value. Again, we are more favourable on the North Asian economies – particularly China – and less so on south and south-east Asian economies.

China set to be “first in, first out” of the coronavirus

Like all economies around the world, China has been impacted by the coronavirus outbreak. However, the Chinese government has taken decisive actions to contain the outbreak, stimulated business activity, and made the necessary policy interventions to support its economic recovery.

Just as it was the first into the crisis, China appears well positioned to be the first out and continue its growth trajectory. Risks remain, but China’s continued establishment as a central hub of the world economy should see it lead the way on the long path to recovery.

 

> download

Active is: Seizing the China opportunity

Growth in China set to outlast the pandemic and trade wars

17/06/2020
Growth in China set to outlast the pandemic and trade wars

Summary

Despite the impact of the coronavirus pandemic, and continuing tensions with the US, China remains on course to become the world’s largest economy by 2030. This could represent the coming decade’s most transformative development in global financial markets – and a major opportunity for investors.

Key takeaways

  • While it has been a challenging year so far, we expect China to resume its growth trajectory and become the world’s largest economy by 2030
  • The previously export-led Chinese economy is shifting its focus to higher-value, tech-driven sectors, with growth fuelled by the country’s burgeoning middle class
  • Improved accessibility, governance and transparency have increased the appeal of Chinese A-shares to foreign investors
  • Many indices underplay China’s growth story; a lack of exposure to China could mean benchmark investors miss out

Allianz China A-Shares

Allianz All China Equity


Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.

Welcome to Allianz Global Investors

Select your language
  • 中文(繁體)
  • English
Select your role
  • Individual Investor
  • Intermediaries
  • Other Investors
  • Pension Investors
  • Allianz Global Investors Fund (“AGIF”)

    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

    • All sub-funds (“Sub-Funds”) may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV. 

    • Some Sub-Funds as part of their investments may invest in any one or a combination of the instruments such as fixed income securities, emerging market securities, and/or mortgage-backed securities, asset-backed securities, property-backed securities (especially REITs) and/or structured products and/or FDI, exposing to various potential risks (including leverage, counterparty, liquidity, valuation, volatility, market, fluctuations in the value of and the rental income received in respect of the underlying property, and over the counter transaction risks). 

    • Some Sub-Funds may invest in single countries or industry sectors (in particular small/mid cap companies) which may reduce risk diversification. Some Sub-Funds are exposed to significant risks which include investment/general market, country and region, emerging market (such as Mainland China), creditworthiness/credit rating/downgrading, default, asset allocation, interest rate, volatility and liquidity, counterparty, sovereign debt, valuation, credit rating agency, company-specific, currency  (in particular RMB), RMB debt securities and Mainland China tax risks. 

    • Some Sub-Funds may invest in convertible bonds, high-yield, non-investment grade investments and unrated securities that may subject to higher risks (include volatility, loss of principal and interest, creditworthiness and downgrading, default, interest rate, general market and liquidity risks) and therefore may adversely impact the net asset value of the Sub-Funds. Convertibles will be exposed prepayment risk, equity movement and greater volatility than straight bond investments.

    • Some Sub-Funds may invest a significant portion of the assets in interest-bearing securities issued or guaranteed by a non-investment grade sovereign issuer (e.g. Philippines) and is subject to higher risks of liquidity, credit, concentration and default of the sovereign issuer as well as greater volatility and higher risk profile that may result in significant losses to the investors. 

    • Some Sub-Funds may invest in European countries. The economic and financial difficulties in Europe may get worse and adversely affect the Sub-Funds (such as increased volatility, liquidity and currency risks associated with investments in Europe).

    • Some Sub-Funds may invest in the China A-Shares market, China B-Shares market and/or debt securities directly  via the Stock Connect or the China Interbank Bond Market or Bond Connect and or other foreign access regimes and/or other permitted means and/or indirectly through all eligible instruments the qualified foreign institutional investor program regime and thus is subject to the associated risks (including quota limitations, change in rule and regulations, repatriation of the Fund’s monies, trade restrictions, clearing and settlement, China market volatility and uncertainty, China market volatility and uncertainty, potential clearing and/or settlement difficulties and, change in economic, social and political policy in the PRC and taxation Mainland China tax risks).  Investing in RMB share classes is also exposed to RMB currency risks and adverse impact on the share classes due to currency depreciation.

    • Some Sub-Funds may adopt the following strategies, Sustainable and Responsible Investment Strategy, SDG-Aligned Strategy, Sustainability Key Performance Indicator Strategy (Relative), Green Bond Strategy, Multi Asset Sustainable Strategy, Sustainability Key Performance Indicator Strategy (Absolute Threshold), Environment, Social and Governance (“ESG”) Score Strategy, and Sustainability Key Performance Indicator Strategy (Absolute). The Sub-Funds may be exposed to sustainable investment risks relating to the strategies (such as foregoing opportunities to buy certain securities when it might otherwise be advantageous to do so, selling securities when it might be disadvantageous to do so, and/or relying on information and data from third party ESG research data providers and internal analyses which may be subjective, incomplete, inaccurate or unavailable and/or reducing risk diversifications compared to broadly based funds) which may result in the Sub-Fund being more volatile and have adverse impact on the performance of the Sub-Fund and consequently adversely affect an investor’s investment in the Sub-Fund. Also, some Sub-Funds may be particularly focusing on the GHG efficiency of the investee companies rather than their financial performance which may have an adverse impact on the Fund’s performance.

    • Some Sub-Funds may invest in share class with fixed distribution percentage (Class AMf). Investors should note that fixed distribution percentage is not guaranteed. The share class is not an alternative to fixed interest paying investment. The percentage of distributions paid by these share classes is unrelated to expected or past income or returns of these share classes or the Sub-Funds. Distribution will continue even the Sub-Fund has negative returns and may adversely impact the net asset value of the Sub-Fund.  Positive distribution yield does not imply positive return.

    • Investment involves risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this [website/material].

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s capital or effectively out of the Sub-Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per share and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the respective Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi/AQ Dis (Annually/Monthly/Quarterly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     


    Allianz Global Investors Asia Fund

    • Allianz Global Investors Asia Fund (the “Trust”) is an umbrella unit trust constituted under the laws of Hong Kong pursuant to the Trust Deed. Allianz Thematic Income and Allianz Selection Income and Growth and Allianz Yield Plus Fund are the sub-funds of the Trust (each a “Sub-Fund”) investing in fixed income securities, equities and derivative instrument, each with a different investment objective and/or risk profile.

    • Some Sub-Funds are exposed to significant risks which include investment/general market, company-specific, emerging market, creditworthiness/credit rating/downgrading, default, volatility and liquidity, valuation, sovereign debt, thematic concentration, thematic-based investment strategy, counterparty, interest rate changes, country and region, asset allocation risks and currency (such as exchange controls, in particular RMB), and the adverse impact on RMB share classes due to currency depreciation.  

    • Some Sub-Funds may invest in other underlying collective schemes and exchange traded funds. Investing in exchange traded funds may expose to additional risks such as passive investment, tracking error, underlying index, trading and termination. While investing in other underlying collective schemes (“CIS”) may subject to the risks associated to such CIS. 

    • Some Sub-Funds may invest in high-yield (non-investment grade and unrated) investments and/or convertible bonds which may subject to higher risks, such as volatility, creditworthiness, default, interest rate changes, general market and liquidity risks and therefore may  adversely impact the net asset value of the Fund. Convertibles may also expose to risks such as prepayment, equity movement, and greater volatility than straight bond investments.

    • All Sub-Funds may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks.  The use of derivatives may result in losses to the Sub-Funds which are greater than the amount originally invested. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV.

    • These investments may involve risks that could result in loss of part or entire amount of investors’ investment.

    • In making investment decisions, investors should not rely solely on this website.

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s income and/or capital which in the latter case represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per distribution unit and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi Dis (Annually/Monthly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     

Please indicate you have read and understood the Important Notice.