Will China Rebound in 2023?

With China relaxing its strict COVID-19 policies, many analysts and economists project an economic renaissance next year. 

Daniel Lacalle, chief economist at Tressis Gestión SGIIC, predicted on CNBC’s Squawk Box on Tuesday that the reopening of China’s economy will be a boost to growth in 2023, though he still expects global growth to be fairly weak relative to recent prepandemic years. 

The price of gold spiked to its highest level on Dec. 27 since late June on the news of China’s reversal. 

It’s not clear if Lacalle’s prediction is likely to come true merely because the country took a big step away from its zero-COVID policies. In fact, its abrupt policy reversal could come with some serious problems of its own. 

China has not achieved—nor has it significantly pursued—strong levels of vaccination against the virus among its population, and the recent easing of its zero-COVID policy has led to a new wave of patients in the country’s hospitals.  

Its elderly portion of the population has been hit the hardest, according to recent reports from the New York Times and others. Most ominously, there are fears China could see COVID-related deaths reach levels seen in the early pandemic phases in more developed markets.  

ETF Performance 

China ETFs’ performance has been uneven this year. The Global X MSCI China Energy ETF (CHIE) is the only one in positive territory year to date that isn’t a geared fund. It has less than $10 million in assets under management and is up 24.7% year to date, largely because it offers exposure to energy stocks.  

Consider that the $6.7 billion KraneShares CSI China Internet ETF (KWEB) is now among the five top-performing ETFs covering China despite having been the worst performer earlier in the year. The fund was down as much as 42% earlier in the year but is now only down 18%. It has also seen about $1.7 billion in inflows year to date according to ETF.com data, as investors have refused to lose faith in the fund’s premise.  

But that persistence might be rewarded if China enters into a period similar to the early days of the pandemic in developed markets. While its citizens can move about more freely, a high mortality rate might discourage them from taking advantage of that, causing people to flock to online entertainment and services. 

The $7.6 billion iShares MSCI China ETF (MCHI) is down 24% year to date, however, even more than KWEB. But it has also seen even greater inflows, gaining $3.8 billion in 2022, nearly 50% of its current assets.  

The $2 billion Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) is down even more, with a 29% decline in 2022, but even that fund has positive inflows, even if they only amount to about $13 million. 

Clearly there are ETF investors who are betting on China’s rebound, but its long-awaited reopening is already taking a heavy toll from a human perspective. And it’s far from clear if that hoped-for growth story will play out in 2023.  

Contact Heather Bell at [email protected]