First in and first out - China as the vanguard for COVID-19 recovery

China’s path to normalisation offers guidance for other countries’ exit from the lockdown. Where are the opportunities for investors?

20 May 2020

15 minutes

China’s path to normalisation offers guidance for other countries’ exit from the lockdown. Where are the opportunities for investors?

The fast view

  • China was the first to suffer the coronavirus and its exit provides guidance on how to adjust to the ‘new normal’ as the crisis abates.
  • Industrial production has largely recovered, but global demand remains weak.
  • The government has used the opportunity to invest in new technologies to accelerate the evolution of the Chinese economy.
  • Consumers remain wary and the shift towards greater online working, gaming and shopping has been accelerated.
  • For investors, a thorough re-evaluation of the situation and the potential winners and losers will be key to securing sustainable returns.

China was brought to a halt for three months to fight the spread of the coronavirus (COVID-19) that emerged in Wuhan. As social and economic activity resumes in China, what can we learn about what to expect concerning the pace of recovery and the avoidance of a second outbreak? How different is the ‘new normal’ likely to be from the past?

The manufacturing and industrial sectors have recovered quickly. The global shutdown has impacted export demand and production has been held back by supply chain issues and a shortage of workers where migrant workers have been slow to return. Nonetheless, with some organisational changes and the implementation of safety procedures and testing, production has normalised. The government has helped, funding infrastructure projects and stimulating the housing market to boost construction and increase demand for building materials like steel and cement.

However, the government’s stimulus plans have also been focused on promoting new technologies, laying the groundwork for future productivity gains at the same time as providing a boost to economic recovery. Investment in the 5G network, artificial intelligence, datacentres and electric vehicle charging stations demonstrates that China is continuing to rebalance its economy away from manufacturing towards innovation-led services.

Social distancing and more cautious consumer behaviour mean that the service sector is taking longer to catch up to normality. Online businesses — whether gaming, music, shopping or education — have all expanded significantly. It seems that the trend towards greater consumption of online products could increase further, reinforced by the virus and the resulting desire to avoid crowds. Willingness to travel remains very low, and hotels and airplanes could remain well below capacity for a while.

The authoritarian government’s use of technology has allowed it to implement an effective national quarantining. With continued social distancing, monitoring and surveillance, it seems to have successfully restarted much of its economy without reviving the epidemic. Concerns over privacy are potential hurdles to this model being followed in all countries, but the compliance with lockdown in Europe has surprised many observers.

There are still uncertainties on the horizon, including which of the trends and changes observed during the pandemic are here to stay and the eventual effect on globalisation. For equity investors, we believe it is most effective to focus on picking the winners using a bottom-up approach. Companies with strong business models and flexible balance sheets, in our view, are likely to prove to be the survivors.


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Specific risks: Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

Jay Wang


Wenchang Ma

Portfolio Manager

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