Editor's note: Jimmy Zhu is the chief strategist at Fullerton Research. The article reflects the author's opinion and not necessarily the views of CGTN.

With the recent yuan-denominated assets rally, the MSCI China Index shot up more than 25 percent in the past month. As China loosens COVID-19 restrictions and launches policies to support recovery, the gains will likely extend to next year.

Recent policies and officials' speeches have prioritized economic growth for the future. Previous experience points to a resilient rebound, and what happened in 2020 may serve as solid guidance for next year.

The 2020 rebound

During the pandemic, the number of COVID-19 infections and fatalities in China was significantly lower than in other countries. By the end of 2021, China's total number of confirmed COVID-19 cases was around 128,000, compared to 289 million worldwide.

China's GDP contracted by 6.9 percent in the first quarter of 2020 after the initial COVID-19 outbreak. After the pandemic eased in most cities in early April, the country's GDP quickly rebounded to 3.1 percent in the second quarter, making it the only major economy to achieve positive growth in 2020.

China's economy grew by 8.1 percent in 2021, compared to the global growth rate of 6 percent, according to IMF data.

The IMF estimates that in 2022, China's economy will continue to grow by 3.2 percent, in line with the global economy.

Looking ahead to 2023, following the recent easing of COVID-19 restrictions, the recovery pattern is likely to be similar.

After contracting by 1.1 percent in March 2020, China's industrial production increased by 3.9 percent in April and accelerated in most months over the next year.

Chinese economic activity is expected to rise gradually in the first quarter of next year, led by the manufacturing sector, followed by a more resilient recovery in the second half. Previous data suggests that manufacturing activity is likely to recover faster than consumption.

Moreover, since Omicron seems less lethal than previous variants, rising cases may have a limited impact on factory production activity.

Yuan assets set to outperform

China's economic growth will likely accelerate further in the second half of next year when consumption rebounds.

Take what happened in 2020 as a reference. Retail sales started to grow in August, about five months after manufacturing activity began to recover. We expect this pattern to repeat in 2023, when consumption should start accelerating in March as people return from the Chinese New Year holiday.

Many advanced economies, such as the U.S. and some eurozone countries, are expected to fall into recession in 2023 due to aggressive interest rate hikes by many central banks. The Chinese economy, however, is in an early-cycle expansion phase. Therefore, yuan assets are likely to outperform their peers.

One of the most reliable indicators of the likelihood of a U.S. recession is the spread between three-month and 10-year Treasuries, which is now -0.90 percent, the widest gap on record. Typically, when the spread turns negative, investors expect weak long-term growth prospects.

Moreover, U.S. inflation growth remains much higher than the U.S. Federal Reserve's (Fed) target of around 2 percent, so the Fed is likely to keep policy rates at restrictive levels for an extended period. Under this scenario, there is virtually no upside for U.S. stocks in 2023 that can be expected until the Fed signals a cut.

In Europe, the IMF recently predicted that inflation risks were on the rise. A technical recession in some parts of Europe, meaning at least two-quarters of negative GDP growth, could trigger a deeper recession across the continent.

With the dollar likely to trend lower in 2023 under a less hawkish Fed, global asset managers will look for opportunities in emerging markets for higher returns. With the Chinese economy set to grow at a faster pace among major economies in 2023 and a lower inflation environment, its assets stand a high chance of becoming a safe haven.