Example - Footnotes

The “Four Ds”– coined by the Council of Foreign Relations’ Zongyuan Zoe Liu – are a useful frame… of reference for understanding the country’s interconnected economic challenges.¹

However, we believe negativity on the macro backdrop has led to an underappreciation of China’s secular opportunities.

Firstly, policymakers are taking steps to stabilize and smooth out the slowdown and even as China’s expansion moderates, the growth rate is still projected to outpace that of the global economy over the next five years.²A key reason why earnings growth often doesn’t map cleanly to economic growth is because of the ability for domestic champions to become multinational powerhouses and generate outsized profit growth.³ This is where China has the potential to excel, with multiple industries and companies showing remarkable innovation and growth.

Valuations are inexpensive relative to other emerging market peers. China is trading before 12-month forward price-to-earnings ratio of 9.8, a significant discount to MSCI World Index, as of November 1, 2023. We anticipate domestic households’ asset allocation will shift towards publicly traded equities over time, as is typically the case when economies mature.⁴Furthermore, the slump in real estate is likely to reduce the appeal of this investment vehicle for domestic investors. This could shift relative investment preferences and flows in favor of public equities.

Footnotes

¹ Zongyuan Zoe Liu, “Zero-COVID is the Least of Xi’s Economic Problems”, November 2022 (Foreign Policy).
² International Monetary Fund, “World Economic Outlook: Navigating Global Divergences”, October 2023.
³ MSCI Barra. “Is There a Link Between GDP Growth and Equity Returns?”. May 2010.
⁴ UBS Asset Management, “Chinese assets : diversification and return”, August 2020.