When opportunity knocks: The case for investing in Chinese equities

Executive summary

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)