While last year China temporarily reverted back to its old economy model, this year it is refocusing on its new one, outlined in its new Five Year Plan. This is where the most interesting investing opportunities are found: domestic consumption, technological innovation and energy transition, Gabriela Santos, Global Market Strategist at JP Morgan, informs.
Timing and nature of Chinese recovery different than US
“China’s expansion continues this year, but with a focus on the quality over quantity of growth. China aims to shift gears back to its long-term priorities by normalizing policy and growth drivers. The March economic data shows the baton moving back to the ‘new China’ (domestic demand and consumption) from last year’s ‘old China’ (external demand and investment). For investors, this is the most interesting long-term opportunity: China’s domestic consumption, technological innovation and energy transition. Crucially, these themes are more accessible as China’s capital markets continue to develop and open up.”
“China’s GDP grew 2.3% in 2020, led by exports and industry. This recovery is very different from what has occurred in the US, where consumption has led and industry has lagged. The nature of the fiscal stimulus provided in each country helps to explain why: China aimed its support at local governments and corporations, while the US aimed it directly at households. In 1Q, China’s GDP grew 18.3% YoY, showing the expansion continuing.”
“After this year’s 18% correction in the MSCI China, valuations are now presenting a more interesting entry point. Over the next decade, China’s growing capital markets and its increasing size in the 60/40 portfolio is the most interesting development to watch.”
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