Is the COVID-19 pandemic on the wane in North Asia?
The following is a detailed update, in chart form, on North Asia's road to a rebound after suffering the economic effects of the COVID-19 lockdowns/social distancing.
Exhibit 1: Asia’s Epidemiological Curve
China Business Activity—Supply/Manufacturing
Recent data shows that China’s industrial activities have returned to 80%-100% of their level last year. Combining the coal consumption of the six key independent power producers (IPPs), their total coal consumption has returned to +5% year-over-year (YoY) growth in May, from -10% in April and -20% in March. Likewise, China’s iron ore imports have recovered to pre COVID-19 levels given the government’s focus on intra-structural projects in Central and Western China to cushion the economic shock of the pandemic. Over 90% of migrant workers have returned to their workplace, but there is significant under-employment (e.g., no overtime pay) and reduced labor participation (i.e., drop from formal sector to informal work).
Exhibit 2: China Business Activity—Supply/Manufacturing
Source: (A) UBS China Economic Research. As of 25 May 20. (B) Bloomberg, WeBank, State Street. Data as of 13 May 20. Past performance is no guarantee of future results. IThis information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
The China Business Activity—Investment
Property sales volume in 30 major cities recovered to 2019’s level in May, from -20% YoY in April and -37% YoY in March. Auto sales, a big ticket item, has recovered to -5% compared to the same time last year but some demand may be on the back of preference for private over public transport.
Exhibit 3: China Business Activity—Investment
China Business Activity—Discretionary Spending.
Exhibit 4: Highly Discretionary Spending
Source: NBS, CEIC, Morgan Stanley Research. As of 31 March 20. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
China Business Activity—Travel
Metro passenger trips in big cities remained down 50% YoY in early May, due to avoidance of public transportation until more confidence is gained on virus control and fear of a second wave of infection. As a consequence, there is greater traffic congestion in major Chinese cities as people avoid public transport and use private vehicles. Domestic air travel has recovered to -25% of last year’s level. Local tourists are spending less and international travel remains highly depressed due to stringent travel restrictions.
Exhibit 5: Domestic Airline Passenger Volume
Source: Flightaware and Barclays Research. As of 03 Jun 20. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
South Korea Activity
Traffic volume levels recovered in recent weeks after bottoming in early March, reaching 95% of the 2017-2019 average by early April. This strong recovery is skewed by the reduced use of public transport. Retail sales plunged in February but the actual fall was more benign as boosts in online activities provided a buffer to drags in offline store sales.
Exhibit 6: Expressway Traffic and Retail Sales
Source: (A) Korea Expressway Corporation and J.P. Morgan. Grey lines are data for 2017-2019. As of 01 May 20. (B) NSO and J.P. Morgan. As of 01 May 20. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
External Sector Challenges
The key challenge to a robust post COVID-19 economic recovery in North Asia lies on the external front. The pandemic has led to overseas demand destruction and supply chain disruption amid a backdrop of increasing US-China geopolitical tensions.
Exhibit 7: North Asia External Sector Remains Highly Challenged
Source: (A) Bloomberg. As of 21 May 20. (B) Bloomberg. As of 27 May 20. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
Domestic activity indicators for North Asia show a “return to normalcy,” particularly from the supply side (e.g., fuel consumption). Discretionary expenditure recovery is “Nike swoosh”-shaped, with the average consumer affected by job uncertainty and social distancing concerns. The key vulnerability to the post COVID-19 economic recovery lies on the external front. If developed markets were to be impacted by a sizable second wave of viral infection, the external sector will be the recovery’s Achilles heel.
Small open Asia “hub” economies (e.g., Hong Kong and Singapore) will suffer disproportionally from trade disruptions and travel restrictions in the aftermath of the COVID-19 pandemic without the cushion from large domestic demand like from mainland China.
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An independent power producer (IPP) or non-utility generator (NUG) is an entity, which is not a public utility, but which owns facilities to generate electric power for sale to utilities and end users. NUGs may be privately held facilities, corporations, cooperatives such as rural solar or wind energy producers, and non-energy industrial concerns capable of feeding excess energy into the system.
Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. PMI greater than 50 indicated economic expansion; below 50, contraction.
COVID-19 is the World Health Organization's official designation of the current novel coronavirus disease. The virus causing the novel coronavirus disease is known as SARSCoV-2.
A pandemic is the worldwide spread of a new disease.
WeBank is a private Chinese bank, founded by Tencent, Baiyeyuan, Liye Group, and other companies. Tencent is the single largest shareholder, with an estimated 30 percent ownership share.
The China Passenger Car Association (CPCA) tracks statistics related to passenger car use in China.
China’s National Bureau of Statistics (NBS) is responsible for collection, investigation, research and publication of statistics concerning the nation's economy, population and other aspects of society.
CEIC provides a global economic database that covers over 200 countries and 18 macroeconomic sectors.
FlightAware is a global aviation software and data services company based in Houston, Texas, United States.
Official statistics are collected and produced by national statistical organisations (NSOs), or other organizations (e.g. central banks) that form part of the national statistical system in countries where statistical production is de-centralized.
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