Real Assets

The Investing Implications of China's Reopening

Article

Feb 14, 2023

China’s reopening—the faster-than-expected relaxing of local COVID-19 restrictions—is driving increased economic activity and an improving growth outlook for China’s economy and the broader Asia Pacific region. While the jury is still out on what impact the reopening will have on the global economy—whether it will keep global inflation elevated for longer, for instance—it doesn’t change our base-case macro outlook for a mild recession. We believe it does, however, have significant implications for our real estate and infrastructure views.

Real estate. China’s reduced travel restrictions could result in “revenge spending” and increased outbound travel from China. China had roughly 150 million tourist departures in 2019, with roughly $250 billion spent on tourism expenditures, according to United Nations World Trade Organization data. We expect that travel spending returning to that level may boost growth for many real estate subsectors of travel from China. We also expect that relaxed social distancing measures will improve return-to-office trends in China.

We think these trends stand to benefit high-quality landlords and developers in Hong Kong, which we favor over other real estate companies in the region. That said, we are monitoring the risks related to virus outbreaks and potential future lockdowns, as well as domestic unrest and geopolitical conflicts in the region.

Infrastructure. We are already seeing signs that airport traffic is picking up following China’s policy changes, and we expect a further potential recovery in air travel traffic could benefit airport infrastructure companies in the broader Asia Pacific region. We also expect that increased mobility in and out of China could increase demand for commodities, notably liquefied natural gas, supporting energy infrastructure. Finally, we also see opportunities in select communications infrastructure companies arising amid the reopening. Yet while China’s reopening has implications for both real estate and infrastructure equities, we take a security-specific approach, looking to invest in companies that our detailed analysis and sector expertise show are offering strong fundamentals at attractive valuations.

Yet while China’s reopening has implications for both real estate and infrastructure equities, we take a security-specific approach, looking to invest in companies that our detailed analysis and sector expertise show are offering strong fundamentals at attractive valuations. Read more in the full Real Assets Monthly.

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