Week in review
- China 1Q23 real GDP grew 4.5% y/y from 2.9% in 4Q22
- UK inflation fell from 10.4% to 10.1% y/y
- UK unemployment rate rose to 3.8% in February
Week ahead
- U.S. consumer confidence, real GDP
- Europe consumer confidence
- Japan retail sales, unemployment
Thought of the week
China’s real GDP growth beat expectations at 4.5% y/y, bringing the economy a step closer to the 5% growth target. Retail sales was a bright spot, growing 10.6% y/y in March compared to 3.5% in February. This further reinforced that consumption is the major engine driving China’s recovery, with the upcoming Golden Week holiday likely to provide further momentum. Outside consumption, the picture is less rosy. Private fixed asset investments disappointed, in contrast to the recent strong credit data, raising questions on whether much of the money borrowed were not translated into real economy investments or does that just require more time to realize. Other overhanging concerns include contracting real estate investments, 2.7% inflation-adjusted growth in urban income, a 19.6% youth unemployment rate and widening government deficits. Having said so, we still think this quarter’s growth data is still encouraging overall and could mean an end to China’s earnings downgrade cycle although not without its risks. Currently, Bloomberg estimates net income for CSI 300 companies to drop 13% y/y in 1Q23, while offshore-listed Chinese stocks could perform better, with MSCI China earnings expected to grow 14% y/y. Either way, consumer discretionary sectors such as breweries, airlines, hotels will likely continue to outperform, while real estate, industrial, materials and energy sectors might see a drag from slow demand and falling commodity prices. Going forward, for both economic and earnings data, investors should pay attention to sequential m/m readings, as base effects might play a big role on y/y data due to the 2022 Shanghai lockdowns.
Earnings revision ratio of MSCI China and select sectors
Net earnings revisions to consensus estimates, 3-month moving average