China - Good Things to Come?

The effects of the coronavirus have been felt by the majority of the world’s economy with many countries still facing difficulties as places like Europe head into winter. However, the low number of cases in China is improving both investor and consumer confidence having different effects in different parts of the economy. 

Chinese Currency

The Renminbi has hit a 16 month high, with tightening labour markets and increased consumer confidence leading to retail sales rising for the first time in 2020. The Renminbi increased by 0.4% per US dollar which corresponds with an increase in retail spending by 0.5%. 

The news of ByteDance potentially scoring a deal with Oracle has improved relations between Washington and Beijing which has accordingly, led to improved confidence of investors. The rise in the value of the Renminbi suggests that China is no longer actively devaluing their currency and the gains of this have been reflected in the CSI300 Index which rose by 0.6% and the Hong Kong Hang Seng index rising by 0.5%. 

Chinese Business

Additionally, the dramatically increasing amount of equity in Chinese markets is also attracting investment banks looking to snatch up small Asian tech startups. For example, news that Jack Ma’s Ant Group filed its documents for an IPO valued at $30bn has led to increased confidence for the Hong Kong Stock Exchange. 

Banks like KKR and BlackRock have correspondingly raised capital, with KKR finalising their final round of raising $12bn for their Asian buyout funds (the largest vehicle ever for the region). 

Banks such as BlackRock have seen the immense growth within the region and accordingly,  are launching an ETF (exchange-traded fund) on the Hang Seng Tech Index. Not only will this lower costs, it will also provide BlackRock with increased liquidity, also providing them with increased diversification, which ultimately reduces risk. 

Technology companies within China have seen intense growth throughout the coronavirus pandemic and now makeup 23% of the MSCI which is up from 5% 5 years ago. Therefore, this move by BlackRock signals that they feel there are good things to come for Chinese Markets. 

However, the risk that companies such as BlackRock are running is if tech stocks are overvalued as they were suspected to be in the US. This could lead to large sell-offs, similar to what happened in August with tech stocks on the Nasdaq. 

The effects of zero rates 

Finally, zero rates around the world have led to lots of global liquidity which consequently, has led to lots of cash flowing into Asia. 

The high levels of confidence due to tightening labour markets and increased retail spending, immense growth and low world interest rates means that the growth of Chinese markets is one for investors to watch.