I was woken up very early morning (read 4 AM) today by some noise. In my groggy state, I tried to figure out what the noise was all about and then I realized that it was coming from the construction site next door. While I hate being disturbed through my sleep (remember not to call me at wee hours), today this noise was music to my ears. It signaled that construction cranes, Shanghai’s ubiquitous bird, had started humming again.
China has gone through a lot of stress over the last two months thanks to Covid-19. In this environment, the sounds and sights that I used to dislike earlier such as construction noise and traffic jams are welcome signs of a turnaround. The green-shoots of recovery are emerging everywhere around us - Malls have more traffic; coffee shops have people sitting inside and there is a lot more traffic on the streets.
While we are all aware of Covid-19’s toll on Chinese GDP in the first two months of the year but if these palpable signs of recovery are anything to go by, we should be in positive territory in Q2 of this year with Q3 and Q4 showing strong growth for China. Of course, firms which are exposed substantially to export market may have to contend with the fall-out from Covid-19 for a longer period. However, firms with domestic exposure are likely to make a strong recovery sooner.
I started looking at the data that our teams are compiling and analyzing on regular basis and found that most of the data points to a turnaround. Of course, we are not at the same place in terms of economic activity where we were in Q4 2019. However, we have come a long way upwards from January and February 2020.
The traffic density index in Shanghai per Wind database had gone down from 1.22 on January 23rd, 2020 to 1.08 on February 23rd and had come back up to 1.65 on March 23rd. Interestingly, the March 23rd number for this year is higher than the same number (1.43) for last year. The story is not very dissimilar for other major cities.
If I look at coal consumption for China on the Wind database, it had fallen from 472.1k metric tons on January 23rd, 2020 to 418.8k metric tons on February 23rd and climbed to 550.1k metric tons on March 23rd.
We have also been tracking residential rental queries on different websites – the queries had dropped by more than 50% in February, 2020. However, daily search numbers in the last few days have been similar to previous year - it reflects increasing number of people being mobile again.
All of these indicators point to a recovery.
Of course, there are some sectors which have done better over the last couple of months because of increase in demand from people working from home such as infotech and telecom Services, online entertainment (gaming and streaming), fresh produce delivery and healthcare. And some which have lagged behind include financials, energy, aviation, tourism, restaurants etc.
The way people lead their lives and the way they consume has also been fundamentally changed. Some of these changes may have a lasting impact. The sectors that we see strongly emerging out of Covid-19 are remote working applications, online medical care, medical supplies, pharmaceuticals, fresh-produce E-delivery, and online entertainment (gaming and streaming)
As more and more people step out of their homes and start resuming their regular lives, I see a lot more people striving to become heathier and fitter which will have implications for sportswear firms, sports equipment firms, nutrition product manufacturers etc. Of course, people will be looking to reclaim their lost social lives with implications for restaurants, alcohol manufacturers etc. Interestingly, our team has been tracking the online review activity for restaurants on different websites – the review activity had dropped to almost zero for most restaurants in February but last couple of weeks the activity levels have gone up – it indicates that people have started stepping out to restaurants.
And, I reckon most people like me would be looking to go for a holiday after the country bids a proper good bye (and good riddance) to Covid-19. Of course, traveling abroad is likely to be considered dangerous. I am already thinking of a holiday to western China during summers - I am sure a lot more people would have similar thoughts. I see domestic tourism getting a huge boost during the second half of the year. It is already reflected in the booking queries that travel sites are receiving.
As I look out of my window, I see flowers blossoming again – spring is here. I feel reasonably confident that the economy is all set to blossom again.
And to people outside of China, I can confidently say there is light at the end of the tunnel!
(Over the next few weeks, we will be sharing more information on the performance of different sectors that I have mentioned above. If you have any queries please feel free to write to me)