CIO expects China's economy to grow around 5.5% in 2023, though a sequential slowdown poses some downside risk if more policy support does not materialize. (ddp)

But we still believe in China's consumer-driven growth recovery, and think improving earnings and the potential for incremental policy support could help boost Chinese equity sentiment in 2H. Growth differentials versus developed markets should support EM bonds and stocks.


China-linked investments have lagged on growth and geopolitics in the first half of the year.


  • Chinese equities have underperformed the EM index by about 10 percentage points year-to-date, based on the MSCI indexes.
  • Weaker sequential economic data has led investors to question China's economic recovery, and boosted calls for more policy support.
  • Anticipation of a US executive order to limit outbound investment in sensitive high-tech sectors in China has also dented sentiment.

But recovering consumption and an earnings catch-up should support Chinese stocks.


  • Retail sales climbed 12.7% year-over-year in May, slipping from the 18.4% y/y pace in April.
  • UBS now forecasts China GDP growth of around 5.5% this year, though more material support and stimulus to shore up activity could boost this.
  • First-quarter results on balance came in above expectations, though forward guidance from management has not been overly ebullient.

So we continue to position for upside in China equities and bonds.


  • We expect 14% China earnings growth this year. MSCI China's forward price-to-earnings ratio of 9.3x is just 16% higher than last October's crisis trough.
  • Within Chinese equities, we favor a barbell approach balancing recovery beneficiaries and sectors with high and resilient dividends (financials and utilities).
  • We're most preferred on EM bonds and equities due to better business and policy cycle dynamics versus the US.

Did you Know ?


  • China's 2023 economic rebound has relied heavily on a domestic consumption recovery as local life normalizes and pent-up demand is released.
  • China's top two new economy companies account for around 40% of the MSCI China index by market cap.
  • Since October 2022, a basket of global China beneficiaries has outperformed the global equity benchmark, even as Chinese stocks have relatively underperformed, which we think reflects a geopolitical drag on sentiment.

Investment view


China's economic recovery can resume, powered by strong consumption. Chinese stocks can benefit on stronger earnings and geopolitical clarity.


Main contributors - Eva Lee, Jon Gordon, Matthew Carter


Content is a product of the Chief Investment Office (CIO).


Original report - Can China assets regain momentum?, 26 June 2023.