
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?