China emerges from virus lockdowns

Key points

A restart
China’s economy is restarting after emerging from lockdown, likely benefiting countries and assets exposed to its growth.
Key to policy response
The key to the policy response has shifted to ensuring successful execution and avoiding policy fatigue before the shock passes.
ECB in focus
Markets will watch the European Central Bank’s policy meeting for if it will increase the size of its pandemic emergency purchase program.

China’s economy – the first to enter lockdowns and the first to emerge from them – is restarting. We see the economy likely returning to near-trend growth by late 2020, supported by policy stimulus, especially on the monetary front. China’s economic restart – along with that in East Asia more broadly – underpins our modest tactical overweight in equities and credit in Asia outside Japan.

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Chart of the week
Change in leading Chinese mobile apps users, May 2019 – May 2020

Change in leading Chinese mobile apps users, May 2019 – May 2020


Sources: BlackRock Investment Institute and BlackRock’s Systematic Active Equity (SAE) team, with data from Aurora Mobile Limited, May 2020. Notes: Each line represents the change in the weekly average of daily active users of the mobile app with the highest penetration in each market in China, rebased to 100 on May 31, 2019. The apps are Ctrip for travel, Didi Chuxing for ride-sharing, Anjuke for housing, Jiakaobaodian for driving test practice, and Boss Zhipin for job search, based on SAE research.

The unprecedented nature of the coronavirus shock makes alternative data sources more important than ever to sniff out emerging economic trends that official data may be slow to capture. BlackRock’s Systematic Active Equity (SAE) team has been using big data analysis to track the economic recovery as well as policy signals. One such example is the daily usage of Chinese mobile apps that help facilitate activities such as ride sharing, job hunting and travel bookings. These metrics have rebounded after a sharp dip in late January when lockdown measures were imposed, yet mostly remain below pre-virus levels. See the chart above. Job and housing related app usage is the exception, reflecting a spike in unemployment and pent-up demand. Such trends may preview how the recovery could play out across sectors elsewhere, although China’s experience is no clear roadmap for developed economies that were hit by the virus later and have undertaken different public health approaches.

We see the Chinese government’s recent economic policy actions as lending further support for the restart. The Chinese government unveiled some notable policy moves at the recent annual session of the National People’s Congress, the country’s top legislature. A shift in tone on monetary policy – potentially opening the spigot for increased credit growth– is particularly significant. It adds to fiscal stimulus that so far hasn’t been overwhelming, in our view. The government has moved away from setting an explicit 2020 growth target for gross domestic product (GDP), and is focusing on social issues including job creation as part of an ongoing effort to balance economic growth with financial and social stability. Already, industrial profits and revenues for April recovered sharply on an annual and sequential basis. Together with other positive survey data, this points to a potential strong upturn in economic growth in the second quarter.

One risk to China’s restart – and the world’s - is further deterioration in U.S.-China relations, after the pandemic has brought them to their lowest point in decades. Whatever goodwill came from the Phase 1 trade agreement has now been lost amid mutual recriminations, China’s steps to enhance its global position and a bipartisan re-assessment of the China relationship, made more pointed by the U.S. election year. Potential flashpoints include trade commitments, technology and investment restrictions and policies toward Hong Kong. A decoupling between the two countries in sensitive industries such as technology is accelerating.

The global economy is likely to have two engines of growth in the years ahead: The U.S. and Asia, centered in China. Strategic portfolios will want allocations to both regions. The U.S.-China decoupling likely only adds to this investment case — with exposures across the two regions adding diversification. For example, government bonds from the region offer higher expected returns just as developed market government bond yields have hit record lows. This is true over the tactical horizon as well, and we are overweight Asia ex-Japan equities and credit. Many Asian countries have demonstrated their ability to curb the virus spread so far, and look poised for a strong economic restart. We are watching U.S.-China tensions closely as a key risk to this view.

Sizing the shock
Is the unprecedented policy response enough to fill the gap left by the drop in incomes?
Learn more Learn more

Assets in review
Selected asset performance, 2020 year-to-date and range

Selected asset performance, 2020 year-to-date and range


Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, May 2020. Notes: The two ends of the bars show the lowest and highest returns versus the end of 2019, and the dots represent year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, MSCI USA Index, the ICE U.S. Dollar Index (DXY), MSCI Europe Index, Bank of America Merrill Lynch Global Broad Corporate Index, Bank of America Merrill Lynch Global High Yield Index, Datastream 10-year benchmark government bond (U.S. , German and Italy), MSCI Emerging Markets Index, spot gold and J.P. Morgan EMBI index.

Market backdrop
Measures to contain the virus are gradually being eased in many developed economies. May’s data suggested the worst of the contraction may be behind us, but we see a bumpy restart in coming months. The big question remains: how successful policy execution will be in bridging cash flow constraints and preventing permanent damages to the economy – and what the risk is of policy fatigue in coming months. Markets became wary of rising U.S. China tensions.

Week ahead
June 1 – Manufacturing PMI for Japan, euro area, the U.S. and China (Caixin)
June 3 – Services PMI for Japan, China (Caixin) and the U.S; U.S. factory orders; euro area unemployment
June 4 – European Central Bank (ECB) monetary policy meeting
June 5 – U.S. non-farm payrolls; German industrial orders

This week’s ECB meeting and U.S. payrolls data will be the focus. Markets will focus on whether the ECB will increase the size of its pandemic emergency purchase program. How the ECB intends to deal with the German constitutional court ruling and the potential scenario where the Bundesbank has to pull out of the purchase program will be closely watched. The U.S. jobs data may show a further rise in the unemployment rate, after it hit the highest level since the Great Depression in April.

Directional views
Six to 12-month tactical views on major global assets from a U.S. dollar perspective, June 2020

Directional View

Note: This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Granular views
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, June 2020

Granular View

Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.


Read details about our investment themes and more in our 2020 Global outlook.

Activity standstill


The coronavirus shock is unprecedented and sharper than what we saw in 2008 - but its cumulative hit to growth is likely to be lower as long as authorities deliver an overwhelming fiscal and monetary policy response to bridge businesses and households through the shock. The main risk to our view: The decisive policy response is not delivered in a successful and timely fashion, causing lasting damage to the economy.

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    • The rate of growth in virus cases looks to be slowing in many regions and stringent shutdown measures are gradually being lifted.
    • The nature of the activity rebound will depend on the path of the outbreak, delivery of policy response and potential changes to consumer and corporate behaviors. Success will not just be about restarting the economy and containing the virus – but balancing both objectives.
    • Market implication: We are sticking to benchmark holdings in most asset classes and prefer credit over equities.
Bold policy action


A decisive, pre-emptive and coordinated policy response needed to stabilize financial markets has taken shape, particularly in the U.S. The U.S. unemployment rate hit its highest level since the Great Depression in April, underscoring the need for effective policy implementation.

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    • The Federal Reserve built on its “whatever it takes“ approach to helping the economy through the shock and ensuring markets function properly. We could see its balance sheet more than double to nearly $11 trillion by year end to support the fiscal response. The U.S. Treasury smashed records by setting out a $3 trillion borrowing plan in its quarterly refunding to fund the response – showing the blurring of lines between monetary and fiscal policy.
    • The European Commission unveiled a €750 billion pandemic rescue plan. The size of the common debt raised under the plan, if approved by all 27 European Union members, would be unprecedented.
    • China moved away from setting a GDP growth target for 2020, emphasizing quality of growth over quantity, and announced fiscal stimulus of around 4% of GDP.
    • A German constitutional court ruling threatens the European Central Bank’s independence and could lead to euro area fragmentation in the long run. It’s crucial to have proper guard rails around policy coordination, as we wrote in Dealing with the next downturn.
    • Central banks have moved from alleviating dysfunctional market pricing and tightening financial conditions to ensuring credit flows to businesses and local governments.
    • We see risks of implementation and policy exhaustion. Next rounds of U.S. fiscal stimulus look harder to achieve because of a return of political polarization after a short window of bipartisanship.
    • Market implication: Coupon income is crucial in an even more yield-starved world, including corporate credit.
Resilience rules


Portfolio resilience has to go beyond nominal government bonds and consider alternative return sources that can provide diversification.

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    • A focus on sustainability can help make portfolios more resilient. We believe the adoption of sustainable investing is a tectonic shift that will carry a return advantage for years to come – and the coronavirus shock seems to be accelerating this shift.
    • Market implication: We prefer U.S. Treasuries to lower-yielding peers as portfolio ballast and see a strong case for sustainable investing.
Mike Pyle
Global Chief Investment Strategist – BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment Institute ...
Elga Bartsch
Head of Macro Research – BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Ben Powell
Chief Investment Strategist for APAC — BlackRock Investment Institute
Ben Powell, CFA, Managing Director, is Chief Investment Strategist for APAC within the BlackRock Investment Institute. He is based in Singapore. Mr. Powell is responsible ...
Vivek Paul
Senior Portfolio Strategist — BlackRock Investment Institute
Vivek Paul, FIA, Director, is Senior Portfolio Strategist for the Portfolio Research Group within the Blackrock Investment Institute (BII). The BII leverages BlackRock’s ...