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China’s C-19 recovery offers ‘cautious optimism’

31 March 2020

A rise in consumer demand across China should offer investors a dose of “cautious optimism”, says Fidelity International.

More than half of restaurants and 80% of retailers have re-opened across China’s largest cities, after a long closure to halt the spread of Coronavirus, in what marks the beginning of the recovery in the world’s biggest consumer market.

According to Ned Salter, head of global research, equities, at Fidelity International, daily turnover in many large restaurants remains 40 to 50% below pre-outbreak levels, with fast-food chains generally faring better than high-end restaurants as consumers opt for take aways.

Meanwhile, daily sales across retailers have dropped by around 40% from March 2019 levels. However, sportswear retailers like Li Ning and Anta are already demonstrating a rebound from a February slump and could resume year-on-year growth as early as June.

While footfall remains weak across the high-end stores, Salter says they may experience a rise in demand from wealthy shoppers who would normally travel overseas to purchase expensive goods. A previous cut in luxury consumption tax could add to their incentive.

The clear winner, however, remains supermarkets as consumers continue to stock up on essentials. Market leaders including Yonghui Superstores and Sun Art Retail are expected to post sales growth in the first three months from a year ago. Online grocery sellers have also performed well during the first quarter.

However, the hotel industry has borne the biggest brunt of the pandemic, as people minimised travel over the last couple of months. The occupancy rates of many hotels slumped to single-digit figures, similar to Japan and Korea.

Salter said: “As the first major nation to have seemingly contained the virus, China’s consumer recovery will shed some light on what may happen in the rest of the world as the outbreak eventually peaks and recedes. What is clear is that the resumption of consumer spending is uneven and is unlikely to follow patterns set in the past.

“There are clear signs of recovery across segments, although the pace of normalisation is somewhat slow. We need to see more consumer confidence to sustain the improvement and that will depend on how well China deals now with imported cases to contain the virus fully.”

However, he added: “China’s experience, from initial outbreaks to ensuing lockdowns, has served as a leading indicator in this global pandemic. Now the signs of a consumer-led recovery in domestic demand should offer a dose of cautious optimism to the world in panic.”

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