With a shorter lockdown and faster reopening, are there lessons to be learnt from China or is their roadmap to recovery questionable? Alex Duffy, Portfolio Manager for the Fidelity Global Emerging Markets Fund gives his thoughts on where he thinks China is headed.
All information is current as at its published date unless otherwise stated. Not for use by or distribution to retail investors. Only available to a person who is a "wholesale client" under section 761G of the Corporations Act 2001 (Commonwealth of Australia) ("Corporations Act“)
This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (‘Fidelity Australia’). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making any investment decision, investors should consider seeking independent legal, taxation, financial or other relevant professional advice. This document is intended as general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. You should also consider the relevant Product Disclosure Statements (‘PDS’) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 044 922 or by downloading it from our website at www.fidelity.com.au. The relevant Target Market Determination (TMD) is available via www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated about specific securities may change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. You should consider these matters and seeking professional advice before acting on any information. Any forward-looking statements, opinions, projections and estimates in this document may be based on market conditions, beliefs, expectations, assumptions, interpretations, circumstances and contingencies which can change without notice, and may not be correct. Any forward-looking statements are provided as a general guide only and there can be no assurance that actual results or outcomes will not be unfavourable, worse than or materially different to those indicated by these forward-looking statements. Any graphs, examples or case studies included are for illustrative purposes only and may be specific to the context and circumstances and based on specific factual and other assumptions. They are not and do not represent forecasts or guides regarding future returns or any other future matters and are not intended to be considered in a broader context. While the information contained in this document has been prepared with reasonable care, to the maximum extent permitted by law, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. Past performance information provided in this document is not a reliable indicator of future performance. The document may not be reproduced, transmitted or otherwise made available without the prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is Fidelity Australia.
Neither Fidelity Australia nor Fidelity International warrants or guarantees that this website, any webcast, podcast or video, and the server which makes it available is free from malware, viruses, worms or other harmful computer software or technology. Any links provided to third party websites are provided for your convenience only. Fidelity Australia does not endorse or otherwise approve the views, products or services of those third parties or warrant or guarantee the accuracy, completeness or currency of the information contained in these third party websites.
© 2024 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.
China, despite being the sort of epicentre of the pandemic initially is obviously, had a relatively shorter period of lockdown and a faster reopening. I think there are a few things that drove that, which are not necessarily fully transferable to other economies, simply because of the way in which the government was able to affect a rapid and a very aggressive lockdown. I'm not sure that mandate exists in other markets to the same degree. So the ability of other economies to follow that exact roadmap is potentially more questionable. I do think, however, particularly from a developed market perspective, the infrastructure they have with respect to testing, knowledge testing, ability to identify localised cases, there's a lot of learning that can be taken globally.
I would caution the view that the Chinese domestic economy is back to kind of full steam. I think that the Chinese equity market and the Asian equity markets sold off in the initial part of this crisis, because there was a concern, a supply shock. The factories were closed, there's no output, it's a supply shock. What does that mean for the equity market as a consequence of that? That phase is past, okay? Now we're dealing with a global demand shock, where demand for those markets that Asia, North Asia exports to, Europe, the US predominantly. Those markets have been closed. It's led to a collapse of export demand from Asia.
Now as those markets start to reopen, yes, the Chinese factories are back online, but whether they've got customers that supply is another question. And whether actually when those customers re-emerged, they still demand product at the same rate that they demanded it at the back end of 2019 remains to be seen. Now, I'm currently based in London, we've seen a collapse of consumption initially, because we were under a lockdown environment. That has now changed as we start to reopen. But whether we get back to a hundred percent of the levels that we are at prior to the lock down, I think it's unlikely. And so the level of aggregate demand that China is going to face on the export side remains to be seen, and is a note of caution that I would make around the Chinese equity market and the Asian equity market in particular.
Now on the flip side of that, you do have the ability to fiscally stimulate the domestic economy. This goes back to the earlier point around regionalization and the size of the domestic economy. The ability of China as a country from a governmental level, but also from a pent-up demand perspective to create demand through stimulus, and create a retooling of their economy to offset this export weakness with domestic demand is something which does put them in a better position than some other markets. And it's certainly something that I think we will see fan out globally as economies start to reopen. You will see a greater emphasis on fiscal spend, initially in the form of support, but then more proactively around demand creation on a forward looking basis. And so I think they will be some of the key learnings.