Tiger, tiger!

What investors can expect in the Chinese New Year.

Jan 25, 2022

13 minutes

What investors can expect in the Chinese New Year.

Year of the Tiger

With uncertainty hanging over markets, investors need to tread carefully in the Year of the Tiger. But as Ninety One’s investment professionals explain, there are abundant opportunities too.

Chapters

01
Macro assumptions
02
Domestic policy
03
Equities
04
Fixed Income
05
Global context
01

Macro assumptions

Ceiling in Forbidden City Beijing
Investors must navigate a changing environment in the Year of the Tiger. The Multi-Asset team offers its macro outlook and provides an update on China’s policy priorities.
  • Growth expectations have adjusted but surprises could still be to the downside. The effects of China’s policy tightening from early in 2021 and the attempts to cool the important property sector will continue to impact growth in the first half of 2022.
  • Easier credit conditions. The process of easing credit conditions has started modestly. We expect that downside risks to growth will prompt a progressively more aggressive policy response.
  • Back-pedalling on four of the five ‘policy pivots’ (see ‘Domestic policy’ for more on the pivots). Most of China’s five key policy shifts are expected to play out over the next 10 years. But four of them are likely to take a back seat in 2022 as the authorities’ priority shifts towards growth stabilisation. The one exception is environmental investment, which is a candidate for intensification to support growth.
  • A weaker current-account surplus. Somewhat slower global demand and less demand for COVID-related goods in particular (where Chinese exports have been focused) will remove a big tailwind to China’s exports and to the Chinese currency. Eventual re-opening will revive capital outflows resulting from international travel.
  • Stable consumer price inflation (CPI) and a sharp decline in producer price inflation. Chinese CPI is expected to remain stable at 1.5-2%, but producer price inflation is likely to moderate more rapidly than expected from elevated levels (from 13% now to 0% at the end of 2022), as we see the impact of weaker domestic and global demand and easing global supply constraints.
  • A softer currency. The current strength of the CNY is expected to moderate over the year as monetary policy and relative growth rates between the US and China diverge, and the latter’s current-account surplus moderates. The arrival of a digital CNY has no immediate investment relevance.

China - latest insights

Specific risks

Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company.  Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

General Risks

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Our China experts

Alan Siow
Co-Portfolio Manager, All China Bond
Archie Hart
Portfolio Manager, Emerging Markets Equity
Charlie Dutton
Portfolio Manager, Asia Pacific Franchise
Deirdre Cooper
Portfolio Manager
Michael Power
Global Strategist
Nidhi Mahurkar
Investment Director
Philip Saunders
Co-Head of Global Multi-Asset Growth
Wenchang Ma
Co-Portfolio Manager, All China Equity
Wilfred Wee
Co-Portfolio Manager, All China Bond

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.

All rights reserved. Issued by Ninety One.