At the end of every year, investors are offered numerous outlooks and predictions assessing the major risks faced by each market or region. In the case of China, the big risks cited at the end of 2019 were slowing global growth and the potential for a worsening of the trade war with the US.
Gripped by fears over the outbreak of coronavirus, China’s main indices, since they re-opened after Chinese New Year, have taken a beating. This has also been felt by open-ended funds. Of the 38 funds in the Investment Association universe that are focused on Chinese equities, only three are in positive territory since the start of 2020.
The Chinese stockmarket has suffered its worst day in almost five years, with the Shanghai index closing down 7.9% on Monday (3 February).
China’s economy grew at 6.1% in 2019 – the slowest rate in 29 years. For most major Western economies, 6.1% would be nothing to sniff at, but for the world’s second largest economy it presents a problem. Have we seen the end of the high-powered growth of the past?
While China is widely known for having the world’s largest population, there is a lot more to the country, especially for investors. Crucially, China is adopting global technology trends such as e-commerce and mobile/online payments much faster than western economies.
This article was written in early November for the December edition of our print publication. Therefore, figures concerning market performance in 2019 may be out of date.
The fractious relationship between China and the US has been a major headwind for emerging markets over the past 12 months. Emerging markets are generally the beneficiary of free-flowing global trade, and ‘deglobalisation’ has dented sentiment towards the asset class as a whole. However, scratching beneath the surface, there have been pockets of strong performance – and some active managers have made hay.
On Friday, reports emerged that the White House was considering ways to limit US investment into the Chinese stockmarket. How this would be achieved is unclear. After the news broke, there was speculation that this could include limiting the amount pension funds can invest in the mainland China market.
Despite some recent signs of slowing down amid the ongoing trade war with the US, China remains among the fastest-growing emerging markets. The economy has been posting high single-digit GDP growth over the past two decades thanks to rising domestic consumption and infrastructure investment.
China has become a mainstream investment in many portfolios, and this is only likely to increase in coming years. Exchange traded funds (ETFs) offer investors easy access to the Chinese growth story, but navigating the country’s equity market is not straightforward.
This is the last write-up on the tactical asset allocator portfolio, which has been running since 2013. The investment brief was to be cautious and diversified across asset classes, using exchange traded funds wherever possible, and to avoid being down across all holdings at any one time.
While the portfolio has only doubled in size over the five years since its inception, it has never been down by more than a few percent month on month, although the publication-date constraints of having to deal on one set day per month has limited its agility.