Hope remains for Chinese investments

Yasmine Raso

Senior Journalist, Financial Newswire

11 November 2022

The investment case for China has taken a dip in the weeks after the 20^th National Congress of the Chinese Communist Party and re-election of Xi Jinping, after hopes to pick up economic growth and revisit the zero-COVID policy were dashed.

However, Franklin Templeton affiliate and active investment manager, Martin Currie, has urged investors to hold onto hope and consider the “less-reported messaging from the Congress” that highlighted the importance of security and its ties to economic growth and prosperity.

“One of its obvious attractions is the range of opportunity resulting from its size. It is the world’s most populous nation and boasts the world’s second largest economy,” Alastair Reynolds, portfolio manager at Martin Currie, said.

“It is also the world’s largest exporting nation. Its stock markets are home to over 4000 companies. The scale of China’s domestic and export markets, combined with its desire to develop national industrial champions, has resulted in the creation of many truly world leading Chinese companies in a broad range of industries.”

Reynolds said investors should consider China’s economic growth of three per cent year-to-date in 2022 and its long-term goals to grow its economy by achieving per capita gross domestic product (GDP) at similar levels of a mid-developed country by 2035.

“Despite the slowing economy, broadly speaking, Chinese listed companies remain in sound financial condition and continue to allocate capital effectively to the benefit of minority investors,” he said.

“For example, we have begun to see a broadening out of share buybacks as highly cash generative firms take advantage of lowly valued stock prices.

“Whether we consider the overall market or look at individual companies, China’s equities are trading at attractive valuations, at a discount to comparable businesses in other countries. Critics may suggest low valuations reflect a path to becoming uninvestable.

“Whilst we acknowledge Chinese ideology is very different to Western norms, we continue to see Chinese corporates and broader economic policy as rational.”