Investors still favour China’s assets amid the coronavirus economic shock – for good reason

Chinese equities and the yuan have fared better than their counterparts elsewhere. Without ignoring the risks, it is safe to say China is likely to lead the rest of the world in the recovery from the Covid-19 outbreak

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An employee at an animation studio in Shanghai at work on April 1. As of March 25, about 72 per cent of SMEs using cloud-based platforms had resumed production, according to the authorities. Photo: Bloomberg

Published: 4:00pm, 3 Apr 2020Updated: 10:17pm, 3 Apr 2020

As the Covid-19 outbreak sends stock markets around the world plummeting, it is remarkable how well Chinese equities have performed.

In the first three months of this year, global equities lost more than 20 per cent of their value, while the CSI 300 Index was only down about 10 per cent and the ChiNext index, a board for China’s hi-tech companies, was actually up around 4 per cent.

Despite the global US dollar shortage, the renminbi has also held up exceptionally well. As funding pressures became acute in the middle of March, even safe-haven currencies were under pressure. For example, the yen saw its exchange rate against the US dollar depreciate by more than 5 per cent in the week of March 16.

During the same week, currencies of emerging-market commodity exporters sold off more significantly, with the Mexican peso down by about 10 per cent, while the renminbi was down only 1.4 per cent vs the US dollar.

A bank employee counts US dollar banknotes next to a stack of Chinese yuan at a branch in Jiangsu province, in August last year. Amid the global US dollar shortage, the renminbi has held up exceptionally well compared with other emerging-market currencies. Photo: Chinatopix via AP

There are three main factors behind Chinese assets’ recent outperformance. First, China is likely to lead the rest of the world in the recovery from the Covid-19 pandemic.