The rise of China

Most investors are under-allocated to China, certainly relative to its size and influence in the world. Some takeaways from this discussion about investing in what looks set to become the world’s biggest economy.

16 Nov 2020

21 minutes

Wenchang Ma
Alan Siow
Philip Saunders

The fast view

  • The return potential of Chinese equity markets over the next decade is underpinned by factors including:
    • Rising wealth, with the number of people with an annual income above US$10,000 set to more than double by 2030 from today’s 280 million
    • The Chinese government’s continued push to open Chinese financial markets
    • The fact that domestic investors remain underinvested in Chinese assets
  • Investors need to take a nuanced approach to China’s tech sector. Trade tensions have caused volatility in areas reliant on foreign technology, like semiconductors. But others that rely more on ‘internal circulation’ have strong momentum, such as the solar-energy supply chain. Overall, China’s tech sector is supported by government policies to encourage innovation and technological self-sufficiency.
  • China’s goal of achieving carbon-neutrality by 2060 suggests green development will be a core growth driver over the next decade.
  • The inclusion of Chinese bonds in major fixed income indices makes Chinese fixed income a proposition that can no longer be ignored.
  • The size of the Chinese bond market today is US$15 trillion; that’s roughly the size of all the negative-yielding debt in the world. We expect the positive yields on Chinese debt to attract more investors into the market.
  • Some thoughts on allocating to China:
    • Perhaps counterintuitively, trade tensions and the shift towards protectionism add to the case for a standalone China equity allocation, given the diversification potential.
    • Due to inefficiencies in some Chinese markets, active approaches may be particularly suitable. But it’s important to be mindful of ESG considerations and carbon risk.

General risks:

All investments carry the risk of capital loss.
Wenchang Ma
Portfolio Manager
Alan Siow
Co-Portfolio Manager, All China Bond
Philip Saunders
Director Investment Institute

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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