China's Virus-Hit Economy Shrinks For First Time In Decades - Comments From Aberdeen Standard Investments
"The contraction of the Chinese economy in the first quarter is no surprise and the magnitude was broadly in line with expectations.
"All eyes are now on how the Chinese economy recovers. The authorities have so far taken a targeted approach to stimulus and have yet to unleash the full power of fiscal and monetary might. But there is no doubt more will come, including tax cuts and exemptions as well as low cost loans.
"From a corporate perspective, companies are starting to provide guidance on the guidance on negative impacts to their earnings due to the COVID-19 outbreak. Certain companies and sectors appear more vulnerable whether because of high debt levels, exposure to travel or disruption to their supply chains.
"Importantly, the customers and supply chains of domestically oriented companies are largely based in China, so the bulk of their revenues and costs are renminbi based. This should help keep them more insulated from the effects of the pandemic around the world as well as the ongoing trade dispute with the US.
"The balance sheet strength of the companies we invest in remains healthy and is an asset during times like this. As like elsewhere in the world, companies with large cash reserves, robust business models and good management should weather the current headwinds and prosper in the aftermath.
"The Chinese stock market will continue to be volatile for the foreseeable future, which is an opportunity for stock pickers. The MSCI China A Onshore index is trading at a trailing price-book ratio of 1.85 times, comfortably below its long-term average of 2.35 times.
"The significant impact of the crisis has not altered our long-term outlook for the economy and business. The country's domestic growth story driven by a rising middle-income population will continue to power local company earnings. In time, China will likely overtake the US as the world's largest economy."
