Lower inventories, solid home sales to drive China’s construction sector recovery

There are growing signals of the rebound in China’s economy, particularly being supported by the construction sector. Now, there are growing indications that the recovery in Chinese economy is being spilled over to emerging market currencies, equities and bond markets, and commodity markets, noted Danske Bank.

In spite of the failure of an agreement in the Doha talks regarding output freeze, oil prices have regained rapidly, while iron ore prices have also risen higher again. But improvement in oil prices are because of positive outlook for global growth and boost in demand, rather than hopes regarding reducing productions, added Danske Bank.

Meanwhile, March’s housing figures of China indicated that home sales rose further, providing a path for further reduction in oversupply of houses. Growth in house sales are likely to remain solid this year, noted Danske Bank. China’s construction sector recovery is expected to be driven by solid home sales and lower inventories.

The recovery in construction sector is likely to positively spillover to the sectors exposed to construction, including cement and steel. Construction is expected to increase in tier 1 and 2 cities that are experiencing decline in housing supply and where prices have increased. Meanwhile, China’s construction and industrial sectors are likely to have a rising trend in 2016, said Danske Bank.