Summary

 

Chinese households are flushed with cash. It is estimated that Chinese households have accumulated RMB13tr (USD1.9 tr) in additional deposits as they consumed less (due to the lockdowns), were more risk averse and bought less property over the past three years.

Where will all this money go now that China has re-opened? Our team in China expects consumer spending to rise, especially in services. Dental and aesthetics treatments are likely to surge on the back of pent-up demand. The team expects consumer spending to be an important driver of China’s economic recovery this year. While the Chinese property sector is seeing some green shoots – home sales of China’s top 100 developers rose 15% in February from the same month last year - property purchases are likely to remain moderate.

Our investment team based in Singapore also expects Chinese tourism to rise, benefitting Asia. Chinese travelers reportedly made 155 million trips overseas in 2019, accounting for 20% of the total spend by international tourists. The Civil Aviation Administration of China (CAC) expects total air traffic for 2023 to reach 75% of pre-pandemic levels.

The A-share market may also benefit from the excess deposits. Lessons from the developed and emerging markets on the behaviours of households post re-openings show that some of the excess deposits tend to make their way into the domestic stock markets1. The analysis also shows that retail inflows into the domestic stock markets happen with a lag (after the market has rallied), after consumer confidence has recovered.

We note that Chinese retail inflows into mutual funds have been muted in 2022. If Chinese households behave in a similar fashion to their developed and emerging market counterparts, retail inflows from Chinese investors may pick up in the coming months. This suggests that although the A-share market has rallied 12%2 since November, there could be another leg to the rally.

Chinese retail inflows into mutual funds vs Chinese household deposits

Where will all the Chinese deposits go

Source: Wind. CEIC. UBS. Note: Onshore mutual fund issuance is used as a proxy for retail flows. March 2023.


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Sources:
1UBS. China Equity Strategy. March 2023.
2As of 2 March 2023.

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