Rebound: Nation may top equity market, analysts say

China's economy is widely expected to rebound by the end of the first quarter as COVID-related disruptions wane, giving a much-needed boost to the ailing global economy, according to international investment banks and asset managers.

A rebound in the world's second-largest economy will help drive the growth of neighboring economies, strengthen global supply chain stability and provide attractive opportunities for international investors, they said.

"The speed of China passing the peak of COVID-19 — at least when it comes to the recent wave of infections — is much faster than we previously expected. This means a significant economic upturn may soon take place," said Chen Dong, head of Asia macroeconomic research at Pictet Wealth Management.

China's economic activity may pick up substantially by the end of the first quarter, which will reduce uncertainties related to global supply chains, boost outbound travel and benefit neighboring economies, Chen said.

As some provinces and cities in China have announced that they have passed the peak of the current COVID-19 outbreak, population mobility and economic activity are regaining their momentum, propelling a rally in the Chinese currency and the stock market.

The central parity rate of the renminbi jumped 654 basis points to 6.7611 against the US dollar on Tuesday, reaching its strongest level since mid-August.

In addition, the CSI 300 index, which covers the top 300 stocks traded in Shanghai and Shenzhen, rose for the seventh straight trading session as of Tuesday, closing up 0.11 percent at 4,017.47 points.

Amid weakening global economic and market prospects and tightening campaigns by a number of nations' central banks to curb inflation, the pickup in China's economic fundamentals and its financial markets offers unique opportunities to international institutional investors.

Xu Fei, head of alternatives and multi-asset strategies at Vanguard's Quantitative Equity Group, said that the US asset manager is increasing its exposure to emerging market assets to capitalize on the upside potential offered by Chinese A shares.

China's unfolding economic rebound sharply contrasts with the rising recession risks in major developed economies, thus providing international investors with valuable diversification benefits, Xu said.

Analysts at Morgan Stanley also said in a report on Monday that China may top global equity market performance in 2023.

Given that China's economic activity is recovering from the impact of COVID-19 at a faster pace, they increased their forecast for the nation's GDP growth this year from 5.4 percent to 5.7 percent while also expecting the renminbi to rise to 6.65 against the dollar in the next 12 months, the report said.

Stepped-up fiscal and monetary policies will also boost China's economic recovery, said Wang Tao, head of Asia economics at UBS Investment Bank, who pointed to the possibility of a further reduction in the reserve requirement ratio — the proportion of money that lenders must hold as reserves, as well as further measures to boost the real estate market by authorities in a number of cities.

Efforts should be made to properly boost credit expansion early this year to deliver "accurate and substantial" support for key areas and weak links, the People's Bank of China, the nation's central bank, said on Tuesday after holding a meeting with the China Banking and Insurance Regulatory Commission.

Key areas that financial services should support include infrastructure investment, small business, technological innovation, manufacturing and green development, while financing of the real estate sector will be "steady and orderly", said the central bank.

Data from the central bank showed that China's new yuan-denominated loans totaled 1.4 trillion yuan ($206.5 billion) in December, up by 266.5 billion yuan year-on-year, indicating continuous credit support for the real economy.

Wang said that China's economic recovery is expected to help boost the travel revenue of some neighboring economies and benefit producers of oil and other commodities by propping up related market demand.

Nevertheless, experts also cautioned about the risk of China's demand recovery overstimulating commodity prices.

Jiang Xueqing contributed to this story.