Webinar with Bin Shi – Is China back?

China’s surprise set of policy actions was stronger than many we had expected, and at the same time we are anticipating more stimulus measures to come. Although arriving at a conclusive and well-defined direction took a long while, once set different ministries have tended to respond together. Beijing is making it clear that it is putting in a backstop for the economy, which the markets are rightly reacting to. We think the rally will last longer because of hopes for more coordinated measures to stabilize the economy.

In our view the government will pace any further support and weight market reactions carefully. Since the announcement of the policy pivot, Chinese equity markets went from the worst performing to best performing among global markets¹. While it is positive that the government helped set the tone for the market, policymakers are not interested in creating another stock market bubble like the one from 2015. We expect to see a more measured and gradual approach to follow.

We had turned more constructive on Chinese equities earlier this year. When stocks were extremely undervalued, the fears among investors were not based on market fundamentals. While we wish the stimulus measures had come sooner, we continue to focus on high quality companies.

Because we are bottom-up investors and take a long-term view, our core investments don’t change much. The industry leaders we aim to invest in are well positioned, especially those targeting overseas markets or already demonstrating global competitiveness. That said, we think markets have been overly negative on consumer-related industries. As the government provides more support to the property market and the economy stabilizes, consumption will recover. The sector’s leading companies, currently trading at very reasonable valuations, could be set for a re-rating.

China will continue to work on its structural issues, and this current set of actions is just the start. There is still considerable scepticism among international investors, and we feel that China needs to be more steadfast in communicating its thinking and efforts. Part of the reason for the rally’s magnitude is the significant underweighting of China by global investors of the past three years. This could be the right time for international investors to take a second look at investing in China.

¹ as at 3rd October 2024