China Moving On From Pandemic As Europe, Parts Of U.S. Brace For More

Angela Merkel warns that Christmas might be “canceled”.

Well, not literally, of course, but the events, the parties, might be. Blame the SARS 2 pandemic. It’s still raging on in Europe. Parts of the U.S. are seeing hospitals under duress, with El Paso a case in point here.

But China, where all this began, is moving happily and merrily along.

China’s GDP grew 4.9% year-on-year in the third quarter, accelerating from 3.2% growth in the previous quarter, official data showed yesterday. Market consensus had it growing a little stronger than that — at 5.5% — but it’s better than the rest of the world’s economic progress as the pandemic continues.

China’s GDP grew 0.7% year-on-year in the first three quarters, back in positive territory after falling just 6.8% in the first quarter when lockdowns began.

Global daily cases of Covid-19 topped the 400,000 mark over the weekend to reach a record high as testing continues to find more people who caught the bug.

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Europe currently accounts for about a third of all new cases. New restrictions are being imposed in London and other areas of the U.K.

New cases in Italy eclipsed their early crisis levels to exceed 11,000 a day, spurring the government on Sunday night to announce some restrictions, but no new lockdowns.

Switzerland also imposed new mask rules and crowd controls on Sunday, while in France 9 cities are currently facing curfew orders as around 30,000 positive tests were reported nationwide in 24 hours. It is unclear how many of those were asymptomatic or required hospitalization.

Here at home, new daily cases remained above 50,000 for the fifth straight day. With some public health officials worrying the colder weather will give the coronavirus more opportunities to multiply and spread, investors are finding it hardere to look beyond rising cases and localized lockdown threats to believe in the economic bull case.

The best news, therefore, is China.

The latest encouraging data from China gives us an insight into the recovery in store once a vaccine is released and the outbreak is contained.

“China’s recovery offers an encouraging precedent for the rest of the world,” says Mark Haefele, chief investment officer at UBS Global Wealth Management.

China’s economy is looking good.

A deep-dive into the data showed that the recovery was driven by net exports and investments.

Domestic consumption is also picking up. Data over the Golden Week holidays in October shows that the Chinese people are also becoming more confident about the living with the new SARS and are returning to a more normal routine. The benefits to some businesses look uneven, especially sectors that require crowds — like restaurants and airlines.

Haefele feels there will be “permanent losers and winners” in China because of how they’ve succumbed to the lockdowns.

Thematic investing might be better than big picture equity index funds.

UBS thinks China technology is where it’s at. (I like KraneShares Healthcare, above.)

Among the China technology companies, UBS likes platform companies with accelerating market share gain prospects. They didn’t mention names. The most popular ones traded here would be Sina Corp (SINA), Alibaba (BABA) and Baidu (BIDU).

In particular, without naming names, UBS recommends investors look for technology companies working on big data and artificial intelligence.

“China continues to be a key economic player,” says Neil MacKinnon, an economist for VTB Capital in London.

The latest monthly economic activity numbers for September were also published yesterday morning and industrial production rose 6.9% annualized, while retail sales growth firmed to 3.3% annualized. Like many economies, it is the manufacturing sector that’s been the growth leader in China, while consumer spending and the service sector have generally lagged behind but are clearly in recovery mode.

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