China’s growth is back. Here’s what it means for your investments

What happened?

China’s economy started the year on a solid footing, growing at 4.5% in the first quarter from a year ago.

The growth numbers handily beat market expectations for the economy to expand by just 4.0%.

The latest economic growth figures are closely tracked by investors, who are looking for indications on whether China’s move away from its zero-Covid policy has led to a strong economic recovery. 

Let’s take a closer look at what are some of the key takeaways from the China’s latest economic growth numbers, and what they could mean for our investments in Chinese stocks.  

What you need to know about China’s first quarter economic growth

Here some the key positives of China's first quarter economic growth data:

• Consumer spending was strong as consumers gained confidence following China’s re-opening
• Retail sales climbed 10.6% in March compared to the previous year, representing the fastest pace of growth since June 2021. 
• In particular, online retail sales performed exceptionally well with 7.3% growth in the first quarter, representing 24% of total retail sales.
• Consumer prices rose by 1.3% in the first quarter as inflation remains in check

Here some the key negatives of China's first quarter economic growth data:

• Manufacturing activity was weaker than expected, with industrial output rising by just 3.9% in March from a year ago
• Property investment fell 5.8% in the first quarter from a year ago
• Youth unemployment rate rose to near a record high of 19.6%

What it means for your investment

The stronger than expected economic growth data led economists to be more optimistic about China’s growth for the rest of the year.

Some economists raised their full year China GDP growth forecasts to be above the government’s growth target of 5% for the full year. 

However, the stock market reaction to the data was more muted as the performance of various sectors appear to be mixed.

The CSI 300 index, which tracks the performance of the top 300 stocks traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange, closed higher by 0.30%. 

The share prices of retail and e-commerce companies such as Alibaba reacted positively to the strong consumer spending data. 

However, the share prices of property stocks fell slightly as property investment remains weak. 

What would Beansprout do? 

China is seen by investors as a bright spot in the global economy following its re-opening, and the strong first quarter economic growth data appears to support this view. 

While government policies have turned more pro-growth, the recovery appears to be benefiting some sectors more than the others. As the latest data show, consumer spending was clearly the star performer in the first quarter. 

For investors who prefer to gain broad exposure to China’s recovery without analysing individual stocks or sectors, we can consider an exchange traded fund that is exposed to Chinese stocks. 

Amongst the Singapore-listed ETFs that offer exposure to China’s recovery, the Lion-OCBC Securities China Leader ETF (YYY.SI) has gained 6.3% year-to-date, while the UOBAM-PingAn ChiNext ETF has gained 2.2% year-to-date (as of 18 April 2023)

Discover a full list of Singapore-listed ETFs that offer exposure to China’s recovery with Beansprout’s ETF tool.