China in the year of the ox


In Chinese culture, the ox is known for hard work, positivity, honesty, and intelligence. What does the year of the ox mean to investors? In 2009, the last year of the ox, a Democrat took the U.S. presidency, and the world economy began to recover after a historic slowdown.

Now regarding the present, and especially for China, what can we expect from the year of the ox?

China's economy is expected to grow by 8.1% y-o-y in 2021, faster than the United States (5.1%), the Euro area (4.2%) And Japan (3.1%), according to the latest estimates from the International Monetary Fund (IMF).

More than a world leader in terms of annual growth, China also makes the largest contribution to global economic growth in 2021, with 19.1% of the total, compared with 15.7% for the United States, according to IMF figures.

In addition, China could soon be considered a separate asset class, although it is likely to remain classified as an emerging market for an indeterminate period.

The reason is quite simple. China is too important today to be assimilated with other emerging market asset classes.

The Chinese economy is the world's second largest economy and much larger than the Japanese economy. Nevertheless, the Japanese market is considered by many to be a separate asset class, so That China will also be a separate asset class soon.

The generalization of investments in the Chinese equity market and bonds is no longer a question of "if" but a question of when and how much.

We are delighted to actively participate in the Chinese stock market as investors. Chinese actionsbring not only beta to our portfolios but also alpha.

For 2021, our outlook is as follows:

  • •Lower index performance from 2020:
  • oThe People Bank of China (PBoC) is likely to normalize its monetary policy in 2021, but we do not expect the policy to cause another similar decline to 2018, as the PBoC has probably learned from it.
  • However, there are still structural possibilities in this scenario, such as:
  • oThe continuation of the global economic recovery probably supports a reflation theme in 2021.
  • oThe rise in interest rates and will be very favourable to the financial sector, and part of the commodity and export sector can also benefit.
  • •Market consolidation:
  • oThe trend could be further accelerated by deleveraging and development in traditional industries, such as the development of the real estate, materials, and industrial sectors.
  • •Environmental policies:
  • oThis is one of the most popular themes of the past year and we see good long-term prospects.
  • •Improved service efficiency:
  • oThis means opportunities in the healthcare, software, and real estate services sectors.

In conclusion, there are several factors and risks to consider:

After an extraordinary year in 2020, some segment of the market could be overvalued. Nevertheless, the equity market as a whole should continue to grow, as valuations are just above the historical average. From this point of view, there is no overheating.

Institutional investors are beginning to expand their grip on the Chinese market. Even though China isn't exactly a new story for them, they're definitely partially missed! There are two reasons. First of all, let's not forget that hedge funds in China and Asia are still a fairly fledgling industry. The funds managed by these institutions represent only about 10% of the sums managed in the United States and one third compared to Europe.

The impact of tensions between the US and China on the share price and the opportunities represented by the reintegration of some into the Hong Kong market will have some impact. However, this impact should be limited, as China's "A" shares continue to be dominated by local investors. The void left by U.S. measures to limit investment in specific companies was quickly filled by domestic investors. With regard to the introduction of certain Chinese securities, initially treated primarily in the USA, on the Hong Kong market this has so far had only a limited impact as most of these securities continue to be processed mainly in the US market.

The saga surrounding Ant's IPO was a major shock to investors. However, for now, this is only an isolated incident. Antitrust legislation was announced many years ago. What has happened in recent months is a stricter application. This may have surprised some investors. The reason is that the platforms have become essentials and their strategies can have major impacts on the whole country. But let's not forget that antitrust rules are not just specific to China or the United States,where we could see a major change in attitude with the Biden administration. In the end, we must not forget that the stricter application of these rules could allow the emergence of new players and thus create new opportunities.