Taking the long view on China A equities

Given China’s new growth priorities, there are opportunities for investors who can stomach a slow recovery in the short term.

China’s economy was the first to recover during the ongoing COVID-19 pandemic. However, growth has slowed as the government sought to lower the amount of debt in the property sector.

This is also compounded by China's adoption of a zero-COVID policy, which hinders economic consumption and mobility. If these measures are relaxed, we could soon see some economic uptick and stability. For now, the government needs to come up with supportive measures to reach its GDP growth target of 5.5% for 2022, down from 6% in 2021. Nevertheless, China's new growth priorities present long-term investors with opportunities.

Change is difficult, but inevitable. And it seems we will see much change throughout China’s different industries and supply chain as they increase reliance on local technology, and on the back of the government’s desire to boost China’s middle class. Aside from tech, there could be attractive opportunities in the consumer sector, such as beauty, sportswear, and the financial services sector.

The green energy industry which includes electric vehicle manufacturers and companies within the electric vehicle supply chain too will be attractive, especially with China’s goal to be carbon neutral by 2060. The recent events between Ukraine and Russia that led to increasing oil and gas prices have accelerated renewable energy as a viable option.

Investing in the China A-share market, which are stock shares of Chinese companies listed on the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE), is one way to get exposure to the promising sectors listed above.

Yes, the number of foreign investors in the market is increasing, but this rise will be in tandem with domestic investors too, as social safety nets are put in place by the government. Chinese households currently hold less than 10% of their financial assets in shares, with the bulk still in cash and deposits. Domestic investors will be an important driver for the market over the long term.

China’s zero-COVID policies and slower economic growth have cheapened market valuations, providing a potential entry point for long term investors looking to tap on the opportunities in China’s new and thriving industries.

To learn more about the opportunities in China, read our article here.