Time for Contrarians to Bet on China?
The risks for investing in China’s markets are numerous. President Xi is pivoting the country to a new political era of ‘common prosperity’. What does this mean and will there be space for free market principles? Investors have been fearing that Chinese companies will ultimately be at risk of significant state intervention and that has been putting off investment. On top of this China’s property sector is struggling, growth expectations have fallen this year, US/China relationships have been tense and there is a sharp sell-off in Chinese stocks with the Hang Seng falling by the most on Monday this week since 2008.
The closely followed Shanghai Shenzhen CSI300 index is showing signs of strain and, according to Bloomberg, the first back-to-back losses since 2011.
So, it is clear to see investors are worried about the outlook for China. Part of the reason for the renewed concerns has been due to the insistence of President Xi in maintaining China’s Covid Zero plan. This plan is the shutting down of large communities when there are comparatively few cases in efforts to contain the spread of Covid. You can read here why this policy has been so precious to China.
However, not everyone is bearish on China and this could be a good time for value investors to step in while others are being fearful. This is the view that Allianz Global Investors take. The lead manager for the All China Equity fund, Anthony Wong sees this as a time to buy shares in the tourism and leisure sectors. He sees value in China’s beaten-down sector and says, “If you’re able to stick with a structural-growth market like China, not worrying about the near-term volatility, not selling your positions at a low point, then you’ll still be able to make a decent profit.”
The one catalyst for this growth would most likely come if China exits its Covid Zero plan. Now eventually China will, but will it be in 3 months, 6 months, 12 months, or longer? There are risks near term in China, but does the long-term view outweigh short-term risks?
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
*Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.