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Globally customize reliable opportunities with an expanded array

The shock suffered by Chinese growth due to Covid-19 was unprecedented and the ongoing recovery is segmented, but with production capacity recovering. 75-80% of SMEs have restarted, while services are still late, starting with restaurants and hotels. Exports will be the last to restart due to the global impact of the emergency. So far, the response of the monetary and fiscal stimulus has not been as powerful as in the more developed economies, partly due to the high level of accumulated debt. But in the long term, the virus should accelerate the rebalancing of the economy towards consumption and services, which has been underway for a decade, with domestic demand destined to act as a driver of growth.



The shock suffered by Chinese growth due to Covid-19 was unprecedented and the ongoing recovery is segmented, but with production capacity recovering. 75-80% of SMEs have restarted, while services are still late, starting with restaurants and hotels. Exports will be the last to restart due to the global impact of the emergency. So far, the response of the monetary and fiscal stimulus has not been as powerful as in the more developed economies, partly due to the high level of accumulated debt. But in the long term, the virus should accelerate the rebalancing of the economy towards consumption and services, which has been underway for a decade, with domestic demand destined to act as a driver of growth.

THE ANALYSIS OF THE MARCO FRAMEWORK AND THE PROSPECTS OF SHARES AND BONDS

These are the conclusions reached by Goldman Sachs Asset Management (GSAM) in an analysis on the state and prospects of the second global economic power after the coronavirus emergency, signed for the macro part by Prakriti Sofat, Emerging Markets Fixed Income Economist of the management house. GSAM instead entrusts Shao Ping Guan, China Equity Lead Portfolio Manager & Head of Chinese Equities, and Salman Niaz, Emerging Markets Fixed Income Portfolio Manager & Head of Asian Credit, respectively, with the task of assessing the state of the art and prospects of the equity market and bond.

CONSOLIDATION OF THE OLD ECONOMY WILL BRING NATIONAL BRANDS OUT

On the equity front, the GSAM expert identifies three key investment opportunities in the long term, whose attractiveness is set to increase after the normalization of the economy. The first is represented by the consolidation of the sectors of the "old economy" with the emergence of competitive national brands. The second is the integration of online and offline business models as a consequence of the support offered to consumption by e-commerce during the lockdown, a trend destined to grow in the future. We also believe that globalization will lead to the search for a better balance between the low-cost production component on a global level and the reliability of the offer in times of crisis, with important implications on the productivity of the service sector and the restructuring of the manufacturing sector.

THE CONTRIBUTION OF INNOVATION TO TECHNOLOGICAL IMPROVEMENT

The third opportunity reported by Guan is technological improvement through innovation. In fact, online and cloud infrastructures have been fundamental to alleviate the effects of the production lockdown and allow companies to operate, a process that we believe is destined to continue even after the crisis. Logistics disruptions have also highlighted the importance of having reliable clusters in the supply chain around the world, to the benefit of companies with a solid integration of operational activities vertically and horizontally, able to offer themselves as reliable suppliers even in times of crisis.

OPPORTUNITIES ON THE OFFSHORE CHINESE CREDIT MARKET

On the bond market side, Niaz underlines the divergent performance recorded this year by the onshore and offshore components, with the yields of the former significantly increasing, while the latter reported only marginal spreads. According to the GSAM expert, this divergence has created attractive investment opportunities in China's Investment Grade offshore credit, which has done better than the rest of the emerging markets, but less well than the higher quality onshore segment. Opportunities also in lower quality offshore credit, where the high premium for the current risk and the additional risks related to volatility and liquidity should be reduced with normalization, offering attractive opportunities to long-term investors.

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