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Time to Buy China Again? 🤔

The market was down by 2% last week. The big news for the week was that of Hindenburg’s report on Adani Group, which sent Adani stocks spiralling down. Other than that, all eyes seem to be set on the budget, which will determine market direction more firmly.

While there’s no significant and concrete movement happening in India, China has been on a roll. It was up 4% last week, and wait for it, 15% in just the last month.

Don’t let the FOMO kick in just yet, there are still reasons why you haven’t missed out on the rally.

Chinese equity markets have skyrocketed after the government showed the intent of opening the country up, kickstarting a long-awaited recovery. Here are 5 reasons why there is still more juice left in the China story to make money out of:

1.Households are waiting to spend Some stats from the Chinese Lunar New Year were released this week. From a fraction of economic activity, the country has gone back to pre-COVID levels in a matter of weeks. Over the week-long public holiday:

  • Box office collections of CNY 3.6 billion (CNY 3.4 billion in 2019)

  • Hotel bookings exceeded that in the same holiday week in 2019

  • Outbound air tickets went 4x

Remember how the pandemic saved up money for middle and upper-class Indians? And then consumption went on a high. That’s what’s happening in China now.

2.Government policy has taken a U-turn The pandemic alone wasn’t responsible for China’s problems over the last two years. It was also the government cracking down on the sectors of property and tech.

The government has now turned pro-growth, and not only lifted stringent restrictions, but also announced a hard push to revive its property sector, and eased its hit on the tech sector.

3.Everyone is yet to buy into the story Global investors have run out of China in the last two years. The underweight was on top of the fact that China’s weight in the MSCI Emerging Markets Index is down by 9 pp in just the last two years. Investors are far from going equal or overweight China in their portfolios, and if they have to, there sure will be enough liquidity-led support for Chinese shares.

4.Valuations are mouth-watering China is trading at a discount to other emerging indices and at a discount to its own 5/10/15 years average valuations. With a growth premium likely in the next couple of years, at least at-par valuations are justified.

5.Your portfolio might just need this in 2023 Where’s the growth? Yes, India - and at super premium valuations. Where else? Don’t even try looking West. China seems like a promising candidate to play on a combination of fiscal and monetary policy boost to the economy, and the markets.

💡 Our View: Despite the run-up, China definitely seems like a good idea from an asset allocation standpoint. We’ve added a teeny bit in our all-weather portfolios. It makes sense to have some exposure there given the negative expected correlation for the next year, earnings upgrades and potential valuation re-rating.

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