China pushes through adverse conditions to deliver upside surprise

China has “surprised” analysts after the release of its latest GDP figures confirmed it has pushed through challenging conditions to still record positive growth, albeit slower than the last decade has seen.

According to Sandy Pei, Senior Portfolio Manager for Asia ex-Japan at Federated Hermes Limited, China has had to contend with a perfect storm of challenges in recent years – the property market bubble bursting, an ageing population, US protectionist trade policies and increasing onshore investment by Chinese companies – all culminating in weakening consumer confidence.

But the country’s growth has been buoyed by strong experts, delivering analysts a surprise “on the upside”.

“We believe, despite the renewed trade war escalation, that the risks facing the Chinese economy are well understood and priced in. Chinese equities remain a cheap and under-owned asset class for global investors,” Pei said.

“Earnings have stabilised, and returns are structurally improving as the equity index mix shifts towards higher-growth, higher-return companies. Many firms have also stepped-up shareholder returns.”

Pei said these trends will see China rely on its “high-tech” prowess to continue to power its economy, but will also spur highly competitive conditions for companies.

“We expect favourable policies to stimulate the economy, in particular for high-tech industries, especially in areas where China currently lags global leaders,” she said.

“However, financial support is likely to taper off quickly, as the government prefers a market-driven approach – only the most competitive companies will emerge as winners.”