The gloom that characterized China at the end of 2023 extended into January, fueled by weak macro data released midway through the month. Additionally, mounting frustration appears to have shifted from offshore concerns to onshore issues, evident as local investors withdrew from domestic Chinese exposure, adding to the selling pressure on A-shares.
In my humble view, the Chinese stock market is going to be one of the most important financial news stories for 2024. Despite ongoing sentiments among investors that the current support is inadequate a view I also hold, there has been a noticeable shift in tone. This change suggests an increasing likelihood of more assertive measures, policies, and reforms in the near future.
Most folks lose because they sell at exactly the wrong time. And right now is exactly the wrong time to give up. Patience and perseverance will likely pay off handsomely when the situation improves from here. This interesting article by Lauren Hardy for Portfolio Adviser is another good update on China.
Here is a section:
A sea-change in sentiment towards Chinese equities over the past three years has led to the market trailing in the dust relative to its regional counterparts. According to FE Fundinfo data, the MSCI China index is down an eye-watering 50.4% since January 2020 to time of writing (31 January), while the MSCI All-Country World index is up 30.8%.
In fact, its three-year losses have dragged on longer-term performance, with the MSCI China having fallen by 26% over five years and only achieving 37.6% returns during the last decade.
Had an investor held an S&P 500 tracker over the past five and 10 years, they would have achieved respective gains of 89.6% and 257.5% in sterling terms. This means the market is undoubtedly cheap relative to other stock markets and its own history.
A recent report from Allianz Global Investors though shows that, while earnings were negative in both 2021 and 2022, they turned positive in 2023.
It is also significantly under-owned by investors on a long-term view, with research from Bentley Reid showing that Chinese stocks represent less than 3% of the FTSE All-World, despite being the world’s second-largest economy with $18trn (£14.22trn) GDP.
However, in the month of Chinese New Year, is now the time for investors to buy into a bargain, or is the country’s backdrop too risky to consider? The headwinds facing China’s economy, political backdrop and stock market are multi-faceted.
Dr Baroness Dambisa Moyo, economist, author and co-principal at Versaca Investments, tells Portfolio Adviser: “There’s no doubt about it, most western investors are spooked by China – whether it’s because of regulatory announcements and proclamations, or geopolitical fissures – there is generally a mood music to the region. You have to weigh this against the fact it is a large economy with lots of tentacles around the world when it comes to trade.