Stable momentum should excite investors across asset classes

Strong growth has been forecast for this spring. It is predicted that household consumption and manufacturing investment will speed up this year, strengthening the recovery momentum of the internal circulation and enabling a strong economic rebound.

First, employment data for December 2020 were almost the same as that of December 2019 in terms of total volume and structure, which meant the residents' precautionary saving motives would get weaker, while the consumption confidence would continue to keep the upward trend that began in August 2020.

In the fourth quarter of last year, sales of consumer goods for consumption upgrade showed accelerated growth, in tandem with the narrowing of the income gap between urban and rural residents, indicating new consumption growth points following the percolation of consumption upgrade to lower-tier cities and rural areas.

Second, the tightening production capacity, together with the expectation of a gradual recovery of the global economy this year, is expected to give rise to a gradual rebound in China's manufacturing investment.

The national industrial capacity utilization rate in the fourth quarter was 78 percent, which was the highest level in recent years and a jump from the average rate of the 2017-19 period.

As of December 2020, the PMI new order index remained high, while the finished product inventory index gradually picked up from the lowest level in recent years, making the trend of active replenishing of inventory increasingly obvious.

Given the factors discussed above, and taking into account the resilience of China's exports supported by its supply-side advantages due to the COVID-19 pandemic, as well as the consistent and stable economic policies, China's economic growth is estimated to be strong in the first and second quarters of this year. It will then return to the moderate level quarter by quarter, till the annual growth rate settles around 9.2 percent.

Also, although the uncertainties due to the COVID-19 pandemic and the new round of stimulus policies in the United States would give rise to fluctuations in the US dollar index, the renminbi exchange rate is expected to remain generally stable with two-way fluctuations－and the exchange rate against US dollar is expected to reach 6.40 sometime this year.

Since the Chinese economy was the first to recover from the pandemic impact, investment logic on RMB assets should be different from the rest this year.

As the Chinese economy and economic policies are on track to normalization, RMB asset investment should focus on fundamentals.

To reiterate, China's economic growth rate will roar high during the first few months of this year, before returning to normal or medium level gradually.

This year, incidentally, is the first one of the 14th Five-Year Plan period (2021-25). The new round of reforms is expected to deliver results in the second half of the year, together with speeding up of innovations in the digital economy.

Therefore, during the first half, due to the fast economic growth, cyclical assets will likely produce a better performance, while in the second half, assets connected to business growth will have better potentials.

Among RMB assets, risk assets will likely outperform safe-haven assets this year, and Chinese market's attractiveness to international capital will be reinforced.

Cheng Shi is chief economist at ICBC International Holdings Ltd. Qian Zhijun is a senior economist at ICBC International Holdings Ltd.

The views don't necessarily reflect those of China Daily.