While China’s emergence from COVID hibernation has underwhelmed relative to bullish projections, we believe policymakers may soon step up their efforts to boost growth and job creation. Youth unemployment is historically high, while consumer confidence is quite low, and external-facing sectors are grappling with a slowing world economy. Based on this mix, and ongoing financial stability concerns, we expect support measures to be aimed at fostering labor-intensive consumption growth. An improvement in the country’s economic fortunes should encourage capital inflows, particularly as it is set to occur when growth momentum across other major economies is slowing.

Diverging growth trends should be Chinese yuan supportive, and we are looking for the currency to stabilize before drifting higher over the third quarter and the following few quarters. We think the currency will push toward the 6.75 mark by mid-2024 as the US dollar loses ground against other major currencies such as the Japanese yen and euro – and to a lesser extent, the Australian dollar.