The Chinese equity market is the second largest in the world, and amongst the best performing in 2020. Yet it is significantly under-owned by foreign investors. We look at where the Chinese economy and equity markets are headed, and highlight reasons why long term investors should not overlook this investment universe.
- Ongoing reforms will make China more attractive to foreign investors, as it continues to develop as a key global financial centre
- China’s macro fundamentals are growing along very favourable trends with low government debt, strong growth in corporate R&D spending, robust per capita incomes, and rising consumption
- As a result, China offers attractive growth opportunities across its ‘new-economy’ sectors, such as consumer staples, consumer discretionary, media and entertainment, technology, and healthcare
- China’s supply-side reforms should help to increase the profitability of its State Owned Enterprises, which can eventually lead to stronger economy wide Return On Equity (ROE)
- Chinese companies that can sustain higher ESG standards are likely to create alpha opportunities for investors with superior returns (versus companies with poor ESG standards)