Citi: Equities will likely outperform bonds in China in coming years
Updated 13:35, 18-Dec-2020
By CGTN's Global Business

Editor's note: The upcoming China Central Economic Work Conference is a key meeting usually held in December. The gathering is expected to address the challenges facing China and set the tone for the country's economic policies for the next year. CGTN's Global Business zooms in on key projections alongside interviews with key economists for their 2021 outlook. Timothy Pope interviewed Jamie Wu, investment strategy head at Citi China Consumer Business on what's driving China's world-leading growth in 2021.

Timothy Pope: China's economy is expected to grow about 2.1 percent this year according to your estimates at Citi bank and 8 percent in 2021. That's roughly in line with the estimates we're seeing from a lot of global institutions like the IMF, and it is far in excess of what we're seeing for other countries. But what's going to be driving that? 

Jamie Wu: As we can feel in our everyday life, we know the pandemic situation is basically under control in China. And also we can see huge stimulus packages in China. So we think those are driving all those economic data coming back. We think the full impact of the stimulus packages is yet to come through, so we will still continue to support that (view) in 2021.

Q: Your report mentions a few times this idea of a new economic cycle. I wonder if you could explain to us a bit about what that is.

A: This past downturn is caused by the pandemic, so when the virus gets contained, we think the economy will recover faster when you compare with past cycles. So that's one of the major features of this 'new economic cycle.' And also, I mentioned that there's a lot of similar stimulus policies all around the world. So the second feature will be: we probably will see lower interest rates for longer term. And third of all, we already see innovations accelerating during this pandemic. A lot of unstoppable chains are, including innovation, digitalization and everything will probably affect our everyday lives.

Q: As the economic fundamentals in China continue to pick up as the economy recovers. Does that mean investors should be looking at more cyclical stocks? How should they be trying to balance things out?

A: Broadly speaking, Citi is definitely overweighting equity and underweighting debt. While economic recovery, lower interest rates for longer terms, and some sectors are beaten up and they will play catch up in the future, these are all factors that we think equities will probably outperform bonds in the coming years. As you mentioned, the cyclical sector, they are among sectors that have been negatively impacted during this pandemic. And we already observed some of these outperformance of cyclical stocks in global investment markets, and we think they still have room to go up.

Q: The yuan is another factor. It has been on a bit of a tear recently. How is that rally going to affect equities? And will we see more foreign institutional players and even Chinese institutional players getting into the market as a result?

A: So the interest rate differential is one of the major reasons why the RMB is appreciating. We will probably still see that in 2021, because China's interest rate is much higher than some of the developed countries. On the other hand, China is opening up, it's easier to repatriate investment income. And meanwhile, we see a lot of global indexes, including Chinese assets, including bonds and equities. And those are all factors supporting fund inflows and hence support the Chinese investment market. But we also have to be cautious because traditionally it's not a good news for the export sector. However, we see good data coming from the export sector this November, probably because of the holiday season. Because of the pandemic, a lot of travel expenditures of Western countries might be relocating to gift purchasing and that's supporting Chinese export demand. That could be temporary. But in 2021, we think if the RMB appreciates a lot, it may not be good news for the export sector. So investors might need to be cautious about that.

(Timothy Pope contributed to this story.)

(Cover: VCG)

Search Trends