07.02.2013

Short analysis Monika Rosen, Chief Analyst Bank Austria Private Banking:
Chinese New Year boosts economy

  • Chinese New Year crucial for economic activity – retail should benefit from celebrations
  • China grew by 7.9 percent in the last quarter of 2012 – after seven quarters in succession with declining growth rates
  • China's economy has bottomed out and is still considered one of the main driving forces of the global economy
  • Both equities and bonds of emerging markets overweighted in our investment strategy; we see particularly encouraging opportunities in Asia

This year the Chinese welcome in their New Year on 10 February – the "Year of the Snake". The largest celebration in China, which traditionally falls on a new moon between 21 January and 21 February, involves day-long festivities and the stock markets in China close for a week.

Given that the Chinese economy is picking up pace again after a lengthy slump, greater emphasis is being placed on the economic aspect of the festivities. After all, the question is still there of how successful China will be in making the transition from an export to a consumption-driven economy. In the last quarter of 2012, China recorded growth of 7.9 percent and was therefore back into positive territory after seven quarters of contracting growth rates in a row. Consumer confidence recovered somewhat in the fourth quarter of 2012. An estimated 250,000 migrant workers will return to their home villages during the New Year celebrations. While this will have a dampening impact on industrial production in February, retail should benefit from the celebrations. In December 2012, retail sales in China expanded by 15.2 percent (vs. December 2011), after growing by 14.9 percent in November. So this testifies to a rising trend too, and the signs indicate continued growth ahead. This week in Beijing the government attracted attention with the announcement that the minimum wage was to be raised – an early New Year's present for consumers, and according to analysts a good way of keeping the Chinese spending money.

Similarly to Christmas in Europe, at New Year the Chinese buy electronic devices, household appliances as well as cosmetics and food. The government which was elected last November and will officially take up the reins in March has every interest in bolstering consumption as a pillar of the Chinese economy to reduce their reliance on exports. And they are clearly heading in the right direction: in 2011 the services sector contributed 44 percent to Chinese economic output, while in 2000 this figure was just 35 percent.

Conclusion: We assume that the Chinese economy has bottomed out and that the country will continue to be considered one of the main driving forces behind the global economy. Both equities and bonds of emerging markets are overweighted in our investment strategy, and we see particularly encouraging opportunities in Asia. Chinese equities have not always been among the outperformers in recent years, and so we believe this makes them even more likely to undergo a recovery.

Enquiries: Monika Rosen
Chief Analyst at Bank Austria Private Banking
 Tel. +43 (0) 50505 - 40104
  E-Mail: monika.rosen@unicreditgroup.at

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