Plenisfer Investments Team
Speed of recovery for economic activity in Asia has been above all expectations with governments and social life adapting to the new normality much faster than Europe and US. China, in particular, has exhibited greater robustness than the US and Europe in 2020 due to:
It has all but eliminated COVID19 helping economic activity to return to near pre-pandemic levels. In fact, it may prove to be one of the only geographies globally to deliver positive economic growth in 2020. The recent PMI number in China is now higher than the pre- COVID level pointing to further optimism for economic activity in the near term.
China has been adapting quickly to the challenge of less globalisation than in the past. The Chinese authorities have moved quickly to increase investment in its longer-term infrastructure which is further stimulating the domestic economy.
Source: Bloomberg & Plenisfer Investments SGR 3/12/2020
At Plenisfer, we believe China may be an interesting market offering the opportunity for greater diversification, new income opportunities in an income-starved world and exposure to above average growth.
In particular, we believe Chinese Real estate is a sector which continues to offer compelling yields with relatively low duration risk.
Property sales and real-estate investment returned to positive YoY growth in Q2. Concerns about overheating were dealt with quickly by the Central Bank who stepped in to dampen leverage among property developers. Despite this, volumes in contracted sales are now higher than 2019 level formost developers with prices for transactions not affected by discounts as could have been initially feared.
The following factors could be beneficial for the sector in general:
The domestic nature of the sector means it will be a primary beneficiary of any acceleration in the economic recovery in China.
A return to normality in day to day business operations of real estate sector players will provide additional support.
Recent measures set up by regulators will be effective in containing balance-sheet leverage thereby tempering risks within the sector.
Aware of the cyclical nature of the sector, we carefully select the developers with stronger balance- sheets and exposure to high quality areas of the country.
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