Investment strategy
May 23, 2021
3 mins

The repricing of Chinese equities

May 23, 2021
3 mins
David Bailin
Chief Investment Officer
Steven Wieting
Chief Investment Strategist and Chief Economist
Ken Peng
Head - Asia Strategy
Business woman with digital tablet
SUMMARY

China went into and has come out of the pandemic six-months ahead of the rest of the world. Its economy and equity markets are therefore ahead in normalizing to post-pandemic realities.


  • We believe that slower growth, transitioning back to pre-pandemic levels seems likely for China. Similarly, the pandemic beneficiaries in tech and retail will see slowdowns in their absolute growth rates. These expected events are partially to blame for China’s recent negative equity performance.
  • New regulations designed to promote competition among many leaders as well as caution about excessive credit expansion are sending signals that China is more worried about the long-run quality of its markets rather than the short term impacts these actions have on investor sentiment.
  • We see this cyclical shift in Chinese markets to be nearing its end and not a sign of continued distress. Thus, Chinese equities are nearer to a “buy” given their relative valuations, particularly in technology where China is determined to accelerate its innovation and development in competitive global industries.
  • Given the significant size, earlier stage of development and comparatively younger demographics of its region, China has room to sustain growth for more than a decade. This means that forward-looking valuations of its shares are favorable in our view. 
  • Akin to a recent repricing of tech shares in the US, we have also seen a repricing of tech and consumer shares in China. This negative performance was driven by a broad tightening in credit and regulatory policies that Citi Global Wealth Investments (CGWI) identified in January when we reduced our China allocation down from overweight to neutral.

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