2 min read
China can often be viewed from two perspectives. From one, an economy with an incredible current account surplus, markedly lower P/E multiples than developed economies, and a makeup of industries that look more like a developed economy than those of any other emerging markets (EM) country; from the second perspective, a picture of declining growth, economic uncertainty driven by Zero-Covid policies, geopolitical tensions and recent regulatory private sector interventions. Even though the recent reopening has given cause for optimism, many would argue that longstanding existential challenges remain.
However, what can’t be argued with is that the Chinese economy at USD17 trillion (two-thirds the size of the US), is a large and significant component of the global economy. Today the stock market shares more similarity with the US, as two decades of radical change have rewritten its makeup, evolving it from cheap cyclicals and low quality state-owned enterprises, to high quality tech and industrials. China's small role in investors’ portfolios is often at odds with its immense array of investment opportunities.
As China continues to evolve, potentially transitioning to a middle-income economy in the next decade, it is important to consider what this means for investors. In particular, the next stage of its development is not necessarily going to be one of broad market returns and macro tailwinds supported by growth.
In our report below, David Horsburgh, Head of Clients Solutions, talks more about China’s economic transition and why an active, solutions-oriented approach will be key in the coming years.