He adds that the trend towards more patriotic spending has been going on for many years, and while he does not believe it will materially dampen demand for western brands, the current focus of his trust is on companies that profit from domestic spending within China.
Price pressures?
Perhaps the most significant potential impact of the reopening of China is on inflation levels.
Dall’Angelo expects a moderate increase in inflation as a result of higher demand in China for oil pushing prices up, but she believes the impact on commodity prices will be more muted as a result of the shift in focus to a more consumer-based economy.
But David Rees, emerging market economist at Schroders, expects an initial “sugar high” of economic activity in China, which he believes may fade by late summer.
The reopening means he does not anticipate that the release of pent-up demand will lead to a more sustained recovery – and obviously that will have an impact on global growth and inflation, just on the basis that the Chinese economy is very large.
“But while it is a big economy, it is not actually a big source of final demand, so we think the impact will be limited,” says Rees.
“The big deciding factor will be the level and extent of China household savings. We saw in the US the impact this had, but in China it is more difficult to get reliable data. There has already been some recovery in commodity demand which is inflationary, but it is coming off a low base.”
As with Dall’Angelo, Rees takes the view that the impact on inflation and growth will be moderate and focused on certain areas.
He believes countries such as Germany will benefit from a rise in demand for consumer goods, such as luxury cars, but in general he feels the reopening will lead to increased demand for services, rather than goods, which mirrors what happened when developed market economies reopened.
Such services spending is likely to boost tourism as well as domestic demand.
Link in the chain
One of the root causes of the supply side inflation that has bedevilled developed markets over the past year has been the disruption to supply chains caused by pandemic restrictions and lockdowns in various parts of the world.
Given China’s role as a global manufacturing centre, lockdowns in that country have impacted supply chains, but the reopening is unlikely to have a profound effect on the global level of supply side inflation, according to Rees. He says the supply chain issues had already begun to ease before the reopening, so any boost from here will be marginal.
