Barron's - USA (2020-08-03)

(Antfer) #1

16 BARRON’S August 3, 2020


some cases no lower than pre-Covid.


In Chengdu, the capital of southwest-


ern Sichuan province, small shops are


being built where just two months ago


others had closed. Retail sales were


down only 1.8% in June, compared


with a steeper drop earlier in the year,


with product categories such as


household appliances and cosmetics


posting growth.


China is the only major economy


forecasting growth this year. While


differences with the U.S. abound in its


political system and handling of the


virus, China’s recovery offers reason


for optimism as the U.S. strives to get


its health and financial crises under


control. “The recovery is derived from


the fact that people feel safe again,”


says Danton Goei, portfolio manager


for the Davis Large Cap, Global, and


International funds.


China’s recovery has sent its shares


on a tear, with initial encouragement


from Chinese officials and, more re-


cently, moves that allows insurers to


own more equity. The CSI 300 index,


which includes the largest stocks on


the Shenzhen and Shanghai stock ex-


changes, is up 14.2% this year. Money


managers have sought out companies


that will benefit as Chinese consumers


recover and adjust their preferences to


a post-Covid world, largely undaunted


so far by U.S.-China tensions.


Some trends have been super-


charged: Consumers continue to shift


more spending online, for groceries


and electronics and also education.


The pandemic has bolstered their


spending on health and wellness. And


despite the economic shock, fund


managers see continued demand for


premium products.


But things aren’t exactly normal.


Household consumption in the sec-


ond quarter was weak, and average


rents in large and midsize cities


slipped more than 2% from a year


earlier. A UBS consumer survey con-


ducted across China found that fewer


respondents than last year expected


incomes to rise from year-ago levels,


feeding economists’ expectations that


consumption will rebound sharply


from depressed first-quarter levels


but end this year flat compared with


2019. They see spending growing


nearly 9% in 2021, however.


Still, there are signs of a recovery


HowtoInvest


InChina’s


Consumer


Comeback


Travel is out, but e-commerce,


luxury-goods shopping, and home


improvement are in. What the U.S.


can learn from China’s revival.


“Purchasing


in certain


sectors is


looking


relatively


robust.”


Leon Eidelman,


manager of J.P.


Morgan Emerging


Markets Equities


fund.


C


hina’s consumers have pow-


ered the growth of global


companies, and the global


economy, for many years.


After suffering a blow from


Covid-19, which shuttered


much of the Chinese econ-


omy this past winter, China’s consumer


is back in action, although shopping


differently than before.


As the first country to grapple with


the virus and get it under relative con-


trol, China has had the longest time to


adjust to the pandemic era. It also im-


plemented one of the most aggressive


lockdowns in the world, and suffered


one of the sharpest economic hits as a


result. Economic activity contracted


6.8% in the first quarter, the first drop


in at least 28 years, compared with


declines of 5% in U.S. gross domestic


product and 3.6% in euro zone GDP.


Consumer retail sales in China for the


first two months of the year slid 20.5%.


The economy now is beginning to


perk up, as China has been extin-


guishing Covid-19 flare-ups with ag-


gressive testing and contract tracing.


In a note to clients on Wednesday,


Capital Economics said China’s ability


to contain Covid-19 and implement


policy support put its economy on


course to return to a previrus path by


year end, much earlier than expected


for any major economy.


Traffic—and pollution—are back


near pre-Covid levels. Lines are form-


ing at restaurants, and people are


snapping up real estate, with prices in


By RESHMA KAPADIA


under way. Early in the pandemic, an


estimated 70 million to 80 million


people weren’t working or had lost


their jobs; now more than three-


quarters of those are back at work,


according to UBS economists’ esti-


mates. Consumers are also saving


more, which means that improved


household balance sheets should pave


the way for a stronger recovery once


consumer confidence returns.


Travel intentions and spending are


down roughly 30%, but consumers


are redirecting some of that money to


splurges, whether for skin care or


home improvement. At the same time,


brand preferences are shifting, with


consumers favoring larger companies


they see as reliable and safe, and more


domestic brands. “Services aren’t back


100%, but purchasing in certain sec-


tors is looking relatively robust,” says


Leon Eidelman, manager of the J.P.


Morgan Emerging Markets Equity


fund. “They are coming out of this


pandemic.”


Barron’scanvassed money manag-


ers and analysts to learn what Chinese


consumers are spending on, how their


preferences have changed, and which Getty Images


Although malls like this one in Wuhan are open, Chinese consumers increasingly are turning to e-commerce for everything from groceries to education.

Free download pdf