China has been a volatile market to invest in. In recent years it’s been hit hard by the impacts of the country’s zero-COVID policy, slowing economic growth and the struggling property sector. These have all weakened Chinese company share prices.
Further lockdowns in 2022 and currency impact from the rising dollar also led to a further performance drag on China’s markets.
China’s economic growth, consumer spending and business activity could receive a boost from a smooth re-opening. Nevertheless, the lack of transparency in policy could result in its reversal if the re-opening triggers a health crisis due to insufficient vaccination coverage.
To add to that, the property sector’s challenges could further impede China’s long-term growth.
So, where next for China? – a view from the industry
Dr. Xiaolin Chen, Head of International at KraneShares recently provided some of her views on the outlook for China. KraneShares is an ETF provider focused on investment solutions for accessing different Chinese markets.
On politics
“In emerging markets, policy matters. The National People’s Congress commenced on 5 March and was very important to global investors as a reconfirmation of two Ps – People and Policy. With Li Qiang confirmed as the new premier, it’s realistic to expect clear directions of policy making for the next five years. And, detailed monetary and fiscal policy to be introduced”.
On earnings
“As the consumer comes back online in 2023, we believe growth may return, and that the equity cycle may transit to a growth phase where earnings are typically the primary driver of returns. Alibaba beat analysts’ expectations with financial results released on 23 February 2023. Alibaba’s CEO Daniel Zhang stated that consumer and business confidence is rising, echoing the announcement of the International Monetary Fund raising China’s GDP forecast from 0.8% to 5.2% based on COVID restrictions being lifted.
More fourth quarter earnings and first quarter guidance which will be released in the coming weeks could provide a further catalyst as China re-opens post zero-COVID. We believe earnings hold the key to delivering stock performance in the next 12 months and that platform companies are expected to continue to have good performance”.
On COVID-19
“Lastly, COVID-19 is finally behind us. Overall, economic growth should continue to improve from here, economists forecast, underpinning China’s 2023 GDP growth forecast.
The growth impulse should be heavily tilted toward the consumer economy. The consumption recovery is the core driver for China’s economic recovery at present. The 870 million people living in the city can and will lead the way.
According to The People’s Bank of China, Chinese households saved $2.6tn of bank deposits last year, the biggest pool of new savings in history, which is an 80% increase from the year before. The tech companies in China offer an entire ecosystem to benefit and capitalise on the consumer recovery in China”.
These views aren’t our own and we might not share them. This article also isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Investments can rise and fall in value, so you could get back less than you invest.
Thinking of investing in China?
Our Wealth Shortlist of funds, chosen by our analysts for their long-term performance potential, highlights some of the ways to invest in China. Emerging markets are often higher risk as they're at an earlier stage of development, so should form part of a diversified portfolio.
You can invest directly in China through an active fund (ones that try and beat the market) or as part of a broader portfolio through a passive fund (ones which try and track the market).