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Why should we be investing in China?
Will “the year of the Tiger” turn into “the year of the bull”? We expect the Chinese stocks and bonds markets to offer investors higher rates of growth at favorable valuations.
2021 was a disappointing year for investors in China with losses in both equities and stocks due to the economic downturn.
In 2022/2023, we expect the onshore Chinese market to gain ground. It may even be the world’s most “growthy,” with stocks and bonds favorably valued and offering investors higher rates of growth.
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There are signs of further regulation of sectors responsible for increasing living costs in a move aimed at the fairer distribution of prosperity i.e., economic growth. Also targeted support for some sectors including, for example, environmental technologies and electrical vehicles is an encouraging sign.
As their capital markets become more accessible to foreign investors, China’s weight in e.g., the MSCI Emerging Markets will expand. That will automatically lead to an inflow of investment from passive investors, but will also attract the attention of more active investors.
I would cite three reasons here. The most important, of course, is the fact that the Chinese economy is expanding. Depending on the evaluation method used—adjusted for purchasing power or not—China is already the largest national economy in the world. BIP growth in China may be declining, but the Chinese share in global economic growth has been the highest over the last few years. That is impressive—so it is only logical that if China gets sick, so do the global economy and the financial markets.
Those in the financial markets whose economies are most closely linked with the Chinese economy. Logically, Asian assets suffer more when the Chinese economy slows down. Financial markets, such as the German equities market, with a high percentage of firms who export to China are also exposed. In addition, commodity assets are sensitive to economic changes in China. For example, China consumes over 50 percent of the most important industrial metals.
“Investments in commodities are sensitive to economic changes in China”.
Yes. As the Chinese economy grows, so do Chinese companies. The Chinese equities market is already the second largest in the world based on market capitalization, but it is not investable for everyone abroad. This should change and Chinese shares are likely to make up over 50 percent of the emerging markets equity index by mid-decade. The bonds universe is also made up more and more of China. As an investor, there is no longer any way around Chinese titles. Thus, we and our investments are gradually becoming more and more dependent on China.
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The choice of questions and the results of the survey do not reflect the opinions of Vontobel. The majority opinions and trends which may be deduced from the results do not represent a corresponding investment recommendation.
Just four buzzwords for investment year 2022? Find out more about Vontobel’s baseline scenario and get an overview of the backstory from our experts.