May 21, 2024
Sameer Samana, Senior Global Market Strategist
Deconstructing our negative view on Chinese equities
Why we see the recent upturn as an opportunity to reduce exposure, not a sign of sustained recovery
As shown in the chart above, the MSCI China Index is up 28.07% (in U.S. dollars) from its late-January lows, driven by authorities’ policy measures to support the economy and financial markets. After initial skepticism, investors appear to have warmed up to the idea that Chinese equities might finally be making a sustainable turn. Unfortunately, we believe investors are at best premature and at worst falling for another false dawn.
Chinese consumers remain very cautious due to economic slowing and property-market concerns. In the absence of a consumer rebound, China has turned to the old playbook of export-driven growth alongside a quickly developing Information Technology sector. Therein lies a key facet of the problem — much of the world no longer needs China’s excess capacity, trade protectionism has continued to intensify, and the U.S. and other Western nations are working to impede China’s technological advancements.
What it may mean for investors
This combination of factors suggests that China’s recovery should eventually fade and does not even account for the possibility of future risks. We believe investors should steer clear of Chinese equities and use the recent strength to reduce exposure to Emerging Market Equities, in line with our unfavorable guidance.
Risk Considerations
Forecasts, estimates, and projections are not guaranteed and are based on certain assumptions and views of market and economic conditions which are subject to change.
Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities. Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
Technology and internet-related stocks, especially of smaller, less-seasoned companies, tend to be more volatile than the overall market.
General Disclosures
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