By Jessica Wee
After seeing the recent global stock exchange tumble, the Chinese market has been quietly but surely outperforming its peers. With China’s economic data showing signs of recovery from its 1H lockdowns, and helped by accelerated policy easing, the economy is poised for a turnaround. As of today, the Hang Seng index and the Shanghai index is down ~7.7% vs the Dow Jones index is down ~14.6% year-to-date!
Source: Google Finance
Do you remember the iron-fisted policies (which led to horror stories of families being separated from small children!) that China implemented to achieve zero Covid? Now with the lifting of these restrictions, China’s macroeconomic outlook has improved. China’s all-out efforts to revive the economy – in contrast to aggressive monetary tightening in the United States and elsewhere – is also supporting the earnings outlook for the region.
Investors are beginning to see an opportunity to bottom-fish quality stocks at attractive valuations. Buying into stimulus beneficiaries, reopening plays, dividend yields and long term structural growth stocks. It is very likely that China stocks will help Asia outperform, given that China’s stimulus effect will be more pronounced in the second half.
The effect of China’s recovery is also spilling over to the rest of the Asian region. This is because China’s index has high weightage in some of the prominent indices and it has helped to put Asian benchmarks on track to beat a global gauge. For example, equities in China and Hong Kong account for about ¼ of the MSCI Asia Pacific Index, which has outperformed an index of global stocks by almost 5 percentage points over the past month.
From an economic standpoint, Asia is also more dependent on China than the rest of the world on trades and supply chain. China continues to offer huge market growth potential, has a skilled labor pool and unparalleled infrastructure, and is investing in its capabilities as a manufacturing base for industries of the future. Investing in China is not always easy, but there is no other country that can replace it. Ask any company that sources from China, you cannot find anywhere else where the supply chain from A-Z is available in a single place.
Overall, the pro-growth measures that are in place are among several reasons to be constructively positive about China equities. Policy was key to last year’s equity selloffs and could be key to turn the market around this year.
The long-term commitments are making China more attractive to investors i.e. the Chinese government’s commitment to transitioning to a more domestic, service-oriented growth trajectory, increasing spending on healthcare, automation and digitization, and the move towards green energy and a cleaner environment. These could be lip service but time will tell if the government will walk the talk!
The above commitments, coupled with the continued relative underinvestment by international investors and the opening of Chinese capital markets provide opportunities for the opportune investor.
If you would like to take advantage of this market trend, do so by building and expanding your investment portfolio to include assets in HK/China. Start shopping for unit trust or ETFs, if you are not confident to invest in single-stock names.
China has high weightage in some of the prominent indices and it has helped to put Asian benchmarks on track to beat a global gauge. For example, Equities in China and Hong Kong account for about a quarter of the MSCI Asia Pacific Index, which has outperformed an index of global stocks by almost 5 percentage points over the past month
China’s all-out efforts to revive the economy – in contrast to aggressive monetary tightening in the United States and elsewhere – is also supporting the earnings outlook for the region.
It is very likely that China stocks will help Asia outperform, given that China’s stimulus effect will be more pronounced in the second half.
From an economic perspective, Asia is also more dependent on China than the rest of the world on trades and supply chain.
Overall, we believe pro-growth measures are among several reasons to be constructive about China equities. Policy was key to last year’s equity selloffs—and could be key to turn the market around this year.
The long-term trends that make China attractive, for example, the Chinese government’s commitment to transitioning to a more domestic, service-oriented growth trajectory, increasing spending on healthcare, automation and digitization, and the move towards green energy and a cleaner environment.
These, coupled with the continued relative underinvestment by international investors and the opening of Chinese capital markets provide opportunities for the active investor.
Investors who would like to take advantage of the latest market trends can do so by building and expanding their investment portfolio. Gain extra investment exposure in one of the world’s largest economies and in Asian markets.
