How to invest in the new China

As China opens its markets and rebalances its economy towards domestic consumption, this is the right time for investors to think strategically about their approach to China. In this series, we consider how to capture the new engines of Chinese growth, as well as the alpha and diversification potential Chinese equities offer.

Feb 11, 2020

4 Minutes

As China opens its markets and rebalances its economy towards domestic consumption, this is the right time for investors to think strategically about their approach to China. In this series, we consider how to capture the new engines of Chinese growth, as well as the alpha and diversification potential Chinese equities offer.
As China opens its markets and rebalances its economy towards domestic consumption, this is the right time for investors to think strategically about their approach to China. In this series, we consider how to capture the new engines of Chinese growth, as well as the alpha and diversification potential Chinese equities offer.

How to invest in the new China

01
Why China
02
China A-Shares - broader possibilities
03
How to release the potential
01

Why China

After years of export-fuelled expansion, China’s growth engine is changing as its economy rebalances towards domestic consumption. What does this mean for investors?

Harnessing China’s new growth engine

After years of export-fuelled expansion, China’s economy is rebalancing towards domestic consumption. Different industries and a new set of companies will drive the country’s future growth. What are the implications for investors?

For a start, ‘old’ economy industries need a careful investment approach. To tackle overcapacity, Beijing has radically reformed sectors such as steel, cement, coal and shipping. While this restructuring has strengthened companies by improving cashflows and reducing capital expenditure and leverage, it is also fuelling consolidation. Consequently, investors need to identify which businesses are best positioned to emerge as winners over the long term.

At the same time, myriad opportunities are being created in the ‘new’ economy, as the rising affluence of the Chinese consumer, the trend towards upgrading to premium products, and the technology-driven transformation of China’s rural communities accelerate growth in sectors such as consumer discretionary, technology and healthcare. China is already the world’s second-largest domestic consumption market, but these sectors remain small relative to their weight in developed economies. That gives them substantial headroom for further expansion.

There are risks to China’s growth prospects, including structural stresses in the financial sector and the potential for geopolitical headwinds to arise, perhaps from a re-escalation of trade tensions between China and the US.

But with the Chinese government committed to pro-growth policies and mindful of past mistakes, we think China’s growth outlook remains bright. However, in our view, it will require in-depth knowledge of China and an active approach to uncover the most attractive opportunities.

Click here to read more about the opportunity in China.


Investments carry a risk of capital loss.

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.





Important information

This content is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contains statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual outcomes may differ materially from those stated herein.
All rights reserved. Issued by Investec Asset Management, February 2020.

Authored by

Greg Kuhnert

Co-Head of 4Factor

Joanna Yang

Assistant Portfolio Manager