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Investment strategy
January 15, 2021
1 min

China: Beyond 2015 and hello 2007

January 15, 2021
1 min
Ken Peng
Head - Asia Investment Strategy
Shanghai skyline
SUMMARY

Investors are concerned about a bubble in Chinese equities. We remain committed to China positive longer-term prospects beyond near term volatility.


After 36% returns in 2020, Chinese equities reclaimed the 2015 high in early 2021, with the 2007 peak within sight. Investors are concerned about a bubble.

We see several supportive factors, including stronger fundamentals, not just from cyclical earnings recovery, but also better long-term prospects. Valuations are no longer cheap, but they remain consistent with earnings. Foreign fund inflows are strong, supported by low US interest rates and a weak US dollar, as well as foreign institutional investors allocating to quality growth in China.

The main risk comes from domestic credit impulse likely turning downward. The 2016-17 rally ended three months after credit impulse peaked. This time, the credit peak may have been last November. This may leave overall index vulnerable, while sector rotation takes place. The bull market could return after credit conditions normalize, as evidenced in 2019-20.

 We remain committed to the cyclical recovery across the region, which is likely more visible in Southeast Asia this year. Still, given improved fundamentals, we remain committed to China’s positive longer-term prospects beyond near term volatility.

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