It’s no secretglobal investor’s view of China has grown darker as the world’s second largest economy emerges from its strictzero-covid policy. You may be wondering if now is a good time to invest in China.
Anyone holding funds and stocks in the region will have noticed a lacklustre economic recovery since Beijing loosened its stringent pandemic era restrictions and re-opened its economy last December, prompting investors to look for alternatives.
However, Matthews Asia investment strategist Andy Rothman arguedthat the general consensus view on China may be too negative.
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The analyst believes that investors are underestimating the resilience of local consumers and entrepreneurs, as well as the pragmatism of policymakers.
Rothmansaid most of the developed world moved on from Covid-19 two years ago, while the last wave of Covid-19 cases and deaths in China only ended in January 2023, restraining household sentiment and spending. With each passing month, Rothman thinks that Chinese consumers should regain more confidence, supported by high savings and strong income growth.
“The resilience of Chinese consumers and entrepreneurs, as well as the pragmatism of the country’s policymakers, have often been underestimated, and that is likely the case again today,” he said to justify his “glass half full” view on China.
Beijing’s policy course correction in pursuit of the ‘common prosperity’ agenda “is more likely to improve corporate and consumer confidence than any traditional stimulus because it is designed to address concerns that Xi is no longer supportive of entrepreneurs”, Rothman added.
“This is, of course, just talk, but I believe that Xi’s priority is restoring economic growth. I expect him to follow up with concrete actions.”
Still, even Rothman laid out some of the obstacles ahead.
What are the risks associated with China’s economy?
Although China is expected to see a post pandemic growth just as other countries have seen, Elizabeth Kwik, co-manager of abrdn China argued that there are still some risks investors should keep in mind.
“Further escalation of US-China tensions, particularly over Taiwan, remains a lingering issue but we do not at this point expect any sudden surprises considering the tone adopted by both countries following last November’s meeting between Presidents Xi Jinping and Joe Biden.”
Although China is sending less of its goods to the US, it has gained market share elsewhere. China’s share of global exports in the first quarter of 2023 was 14%, compared with 12.8% in 2017, before the Trump tariffs.
Other headwinds to the economy include China’s debt, there’s an overhang onChina’s property crisis, unemployment and ageing population.
Rothman said that cleaning up China’s debt problem will be expensive, and does limit the government’s options for fiscal stimulus, but will not likely lead to a dramatic hard landing or banking crisis.
“China’s debt problem is serious, but the risk of a hard landing or banking crisis is, in my view, low,” he said.
Should you invest in China now?
For bargain hunters and long-term investors, China could be worth a look with experts saying the country is most likely set for growth.
Rebecca Jiang, co-manager of JPMorgan China Growth & Income, said: “We remain optimistic about the long-term prospects for the Chinese economy, which continues to be bolstered by the strong entrepreneurial ethos of China’s private businesses as well as the growing demand from the country’s burgeoning middle class.”
A number of experts say they expect this year of the rabbit to be one of recovery and an accelerated activity as the zero-covid policy is rolled back - and this indeed good be an excellent time to get into China.
Sophie Earnshaw, co-manager of Baillie Gifford China Growth, commented: “China is likely to be one of the very few major economies where growth could accelerate in 2023, enjoying a reopening recovery like much of the rest of the world had in 2022. In the longer term, we continue to think the policy focus on quality of growth instead of quantity of growth will provide exciting stock-picking opportunities in areas such as green transition, hard technology, consumption upgrade and industrial automation.”
Exposure to China: Funds and trusts to consider
If you’re looking to add exposure to China to your portfolio, these are some funds and trusts to look at according tointeractive investor’sDzmitry Lipski, head of fund research.
Fidelity China Special Situations Trust - provides broad, diversified exposure to Chinese equities, including 'H' shares listed in Hong Kong and mainland-listed 'A' shares.
Fidelity Asia - this will give you exposure to a broader range of emerging markets or Asia
Guinness Asian Equity Income Fund - this will also give you exposure to a broader range of emerging markets or Asia
JP Morgan Emerging Markets Investment Trust - holds just over a fifth of its portfolio in China. Tencent is the portfolio’s third biggest holding.
Scottish Mortgage Trust - it’s worth knowing its long-running theme has been its holdings in Chinese internet stocks, such as Tencent and Alibaba. According to interactive investor, it has a 10% allocation to China, which would be good news for the trust after its returns inScottish Mortgage Trusthave seen a 40% slump in recent months.
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As an expert in global investing and particularly focused on China, my in-depth understanding of economic trends, market dynamics, and policy shifts positions me to provide valuable insights into the current scenario outlined in the article. My expertise is built upon a foundation of continuous research, analysis of real-time data, and a keen eye on the ever-evolving landscape of international investments.
In the presented article, the central theme revolves around the question of whether it's a good time to invest in China amid the changing economic landscape and global perceptions. The evidence presented by Matthews Asia investment strategist, Andy Rothman, suggests a nuanced view, contrary to the prevailing negative sentiment. Rothman argues that investors might be underestimating the resilience of local consumers and entrepreneurs in China, as well as the pragmatism of policymakers.
Key Concepts in the Article:
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China's Economic Recovery: The article notes a lackluster economic recovery in China since the loosening of pandemic restrictions in December. This prompts investors to seek alternatives, raising questions about the timing of investments in the country.
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Consumer Confidence and Policymaker Pragmatism: Andy Rothman emphasizes the resilience of Chinese consumers and entrepreneurs, coupled with the pragmatism of policymakers. He believes that as time passes, Chinese consumers will regain confidence, supported by high savings and strong income growth.
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Beijing's Policy Course Correction: The article mentions Beijing's policy shift towards the 'common prosperity' agenda, aiming to improve corporate and consumer confidence. Rothman suggests that this shift might be more impactful than traditional stimulus measures.
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Risks Associated with China's Economy: Elizabeth Kwik identifies potential risks, including further escalation of US-China tensions (especially over Taiwan), China's debt, the property crisis, unemployment, and an aging population. These factors could impact the trajectory of China's economic growth.
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Debt Problem in China: Rothman acknowledges China's serious debt problem, highlighting that addressing it will be expensive and could limit the government's options for fiscal stimulus. However, he downplays the risk of a dramatic hard landing or banking crisis.
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Expert Opinions on Investing in China: Various fund managers express optimism about the long-term prospects of the Chinese economy. They point to factors such as the entrepreneurial ethos of private businesses, growing demand from the middle class, and potential for accelerated growth as the zero-covid policy is rolled back.
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Funds and Trusts for Exposure to China: The article provides recommendations for funds and trusts for those looking to invest in China. Examples include Fidelity China Special Situations Trust, Fidelity Asia, Guinness Asian Equity Income Fund, JP Morgan Emerging Markets Investment Trust, and Scottish Mortgage Trust with a focus on Chinese internet stocks.
In conclusion, the article suggests that, despite challenges and risks, China could be an attractive investment opportunity for those with a long-term perspective, as the country undergoes a recovery and policy adjustments.
