Study Reveals Professional Investors are Optimistic about Chinese Growth but Warn about the Risk of Inflation

China has set an official economic growth target of “around 5%” for 2023, but new research from European ETF provider Tabula Investment Management Limited (Tabula) reveals that a third of European professional investors expect it to be higher.

Growing optimism for China’s improving prospects is reflected by the strong inflows into the Tabula Haitong Asia ex-Japan HY Corp USD Bond ESG UCITS ETF (Bloomberg: TAHY LN), which currently offers a yield of ~14.5%[1]. The ETF has seen net inflows of almost US$100m in the last twelve months, and has returned +50% since 1 November 2022.

At the beginning of November last year China changed its approach from zero Covid to zero Covid restrictions. As a result of this about turn, Tabula’s new study with European professional investors –  who collectively manage over US$250 billion of assets – found 84% now expect Asian economies to avoid a recession this year.

Professional investors are also now much more optimistic about China’s real estate sector, which has endured recent difficulties. Almost all (98%) of those interviewed believe that two years of pain and deleveraging in China’s real estate sector will lead to a significantly stronger base for the industry going forward; nearly half (47%)  strongly agree with this view.

New home sales in China fell in 2021 and 2022, but sweeping measures, such as the removal of restrictions on mortgage lending, means that 62% of European professionals investors interviewed by Tabula expect sales to return to the long-term growth trend this year. More than a third of those surveyed expect pent up demand to result in home sales exceeding this trend.

However, one challenge that could lie ahead for the Chinese government is inflation.  With over US$2.6 trillion added to Chinese household savings last year, domestic savings are at an all-time high. With the removal of  three years of Covid restrictions a wave of spending will likely be released, and as a result, the majority of investors interviewed by Tabula (86%) believe the country’s inflation will breach the government’s preferred ceiling of 3% this year.

Tabula CEO Michael John Lytle says: “Like all major economies China endured a difficult period during the Covid pandemic. This was aggravated by the government’s desire to de-lever and control the country’s rapidly growing property sector. With Covid restrictions removed, and a series of supportive policy measures for the real estate sector deployed, the country is now on a strong footing for growth. Our research shows huge investor confidence in the government’s policies to support this growth.”

The Tabula Haitong Asia ex-Japan High Yield Corp USD Bond ESG UCITS ETF (TAHY) currently provides 34% exposure to the real estate sector and a 48% weight to China. The ~US$300 million AuM ETF is classified as an SFDR Article 8 fund under the EU Sustainable Finance Disclosure Regulation (SFDR).

[1] As at 1 March 2023. There is no guarantee that the stated yield will be achieved.

Past performance is not a reliable indicator of future returns