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Will the year of the pig be good for your clients?

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China’s new year kicks off on 5 February when, according to the country’s zodiac-linked calendar, we will enter the year of the pig. The twelfth and last animal of the Chinese zodiac, in Chinese culture the pig is a symbol of wealth. [1] So, will the coming year be a good time to invest in China and the wider Asian region?

At first glance, the signs don’t look auspicious. Declining Chinese sales of everything from smartphones to cars, property to jewellery, means there is no doubt that China’s economy has been slowing. [2] 

In the short term we believe the economic data coming out of China slowdown could grow worse. A sharp drop in exports at the end of last year suggested China’s trade war with the US is finally starting to hit growth.

We are anticipating a significant soft patch for Chinese exports in the next few months. This follows last year’s rush by Chinese exporters to ship orders - especially to America - ahead of a threat of rising tariffs. At the same time, imports of a range of goods have slowed sharply as China’s domestic economy has continued to weaken. [3]  

Growth stimulus

Despite this, our view is that the year of the pig could still live up to traditional expectations as a good year to invest in China and its neighbours.

Once through the soft patch, we are expecting a sentiment-boosting bounce in Chinese economic activity. This will be driven by further stimulus measures by the Beijing authorities.

China’s government demonstrated its willingness to act in mid-January when it cut value-added tax rates for selected industries and announced several other tax rebates.[4] A record Rmb570bn (£65bn) was also injected into the country’s banking system. Global stock markets pushed higher on the news demonstrating investors’ hope that the measures will help to boost China’s domestic economy.

When China sneezes…

An economic bounce later this year will have an effect far beyond China’s borders. The growing importance of the country and its 1.4bn consumers to global trade means that what happens in the “Middle Kingdom” will have an impact worldwide.

A sharper than expected economic downturn in the world’s second largest economy would put a recovery in Asia at risk and heighten fears for global growth. The Bank of England cautioned last year that even though direct trade links between the UK and China are small – only 4% of UK exports go to China – a sharp economic slowdown in China would have a serious impact on UK businesses.[5]

By the same token, economic improvement in China should have a positive effect on global demand and investor sentiment.

Growth opportunities

At Brewin Dolphin, our role is to continually monitor events on behalf of your clients, keeping our eyes firmly on the horizon. Accordingly, we will be watching developments in China with great interest and may, if we believe it appropriate, increase our exposure to Asia.

Past performance, of course, is no guarantee of future results. However, when the Chinese authorities have acted to boost economic activity in the past it has typically been a good time to invest in Asian assets. If the stimulus measures have their intended effect, Asia could turn out to be a rewarding destination in this Chinese year of the pig.

The value of investments can fall and you may get back less than you invested. 

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.

If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset.

The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.


[1] The Korea Herald: A new year dreaming of abundance, 4 January 2019.

[2] Financial Times: Clouds loom over global business as Chinese economy falters, 13 January 2018.

[3] Financial Times: China exports fall most in 2 years as slowdown and trade war bite, 14 January 2019.

[4] Financial Times: China outlines tax cuts to stimulate economy, 15 January 2019.

[5] Bank of England: From the Middle Kingdom to the United Kingdom: spillovers from China, 22 June 2018.

 

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