China’s economic recovery slower than expected, Citi predicts end-Sept. rebound

Citi analysts have delayed their forecast for a stock market rebound in China due to the country’s economic recovery taking longer than anticipated. Instead of June, they now believe that the Hang Seng Index will not reach 24,000 until the end of September, which is around 18% higher than current levels.

This delay is due to slower than expected post-COVID recovery, with more Chinese companies reporting weaker results than better ones. The country’s economy has shown a slight recovery in growth for the first two months of the year, but earnings from major e-commerce companies suggest that consumers are still cautious about spending.

Citi analysts have added Tencent, Topsports, and Sinopharm to their list of preferred Hong Kong stocks as Tencent’s quarterly results indicate increased spending on advertising, particularly in video accounts and e-commerce portals. Sands China, Chow Tai Fook, and Air China remain on the firm’s list of preferred stocks.

The analysts have also postponed their projections for a stock market rebound in two other Chinese indexes by three months, with a target of 4,500 for the CSI 300 (about 9% higher than the current level) and a forecast of 78 for the MSCI China index (about 18% higher than the current level).

China’s economy is being negatively impacted by declining exports due to slower growth in the US and Europe, as well as a slowdown in the country’s enormous real estate sector.
According to a report by Goldman Sachs credit strategy analysts on Thursday, they anticipate a high-yield default rate of 19% for Chinese property developers in 2023.
Although this is an improvement from last year’s 46.4%, it is still a relatively high rate, indicating uncertainty in the physical property market’s recovery pace.

Despite the negative impact on China’s economy due to declining exports and the slump in the real estate sector, a recent quarterly survey conducted by the People’s Bank of China showed an increase in people’s desire to buy homes, as well as higher expectations for an increase in home prices. Additionally, China’s movie box office has shown some signs of recovery, with the animated film “Suzume” becoming the highest-grossing Japanese film in China with a box office of over 650 million yuan ($94.49 million) this month, surpassing the previous top-grossing film “Your Name,” which was also made by the same director.

On Wednesday, a local holiday, “The Super Mario Bros. Movie” had the largest opening day for a Hollywood animation in China since the pandemic began in 2020, grossing 32.3 million yuan, according to data. This is due to the fact that more foreign films are now being permitted in China, as only a limited number of overseas titles were authorized to be shown during the pandemic.

China is expected to release first-quarter GDP and other economic data on April 18. According to Citi, consumer discretionary and utilities firms are expected to have the greatest earnings per share growth among the Hang Seng Index sectors in 2023, while energy and industrials are expected to see declines. It should be noted that Comcast, the parent company of NBCUniversal and CNBC, is the distributor of “The Super Mario Bros. Movie.”

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