SUMMARY
To fairly and accurately assess the opportunities and risks in China for investors, we take a sober look at how it has evolved its values and priorities in terms of economic, health and market policies.
- Despite the Covid setback, China is still expected to overtake the United States to become the world’s biggest economy by 2030, according to the Centre for Economics and Business Research (2022).
- Yet, as an investor, the decision to maintain and increase exposure to Chinese equities and debt has become far more nuanced since the pandemic hit in 2019.
- China is dealing with a host of issues and changes ranging from a relationship with the US that has meaningfully deteriorated, economic and social sacrifices endured from its strict “dynamic clearance” Covid policies, and the real estate sector – long an important driver of economic growth – now coming under strain.
- Against this daunting backdrop, many investors would simply look elsewhere. But we should note that while China’s macroeconomic policies are easing, most of the world’s central banks are tightening to fight high inflation that is not present in China.
- Low valuations and better credit policies suggest the market is underpricing Chinese equities.
- China’s path to a broader economic recovery is likely to be bumpy. Nonetheless, we retain our constructive view of Chinese equities for 2023 as China is the sole large economy that is easing monetary and fiscal policy, seeing rising growth, and presenting historically low equity valuations.
