China’s changing economic landscape

China’s changing economic landscape

Chin Ping Chia, Head of China ‘A’ Investments, Business Strategy and Development, Kevin Chen, Head of Investments, Invesco Great Wall, Weilun Soon, Thought Leadership Manager, Chris Liu, Senior Portfolio Manager and Yingying Su, Client Portfolio Manager, Invesco Great Wall

How should equity investors think about their China strategy?  

Key takeaways

  1.  Led by consumption growth and innovation, geopolitical developments are accelerating China’s strategic transformation.
  2. Demographic trends, technology and market reforms are key catalysts that could drive long-term equity performance.
  3. Correctly understanding the trajectory of the transformation is key to understanding the beta that can drive future performance.

Which macro secular trends are likely to sustain China’s economic transformation and how should investors position their portfolios to tap into these shifts?

China has been embarking on reforms to sharpen the competitiveness of its private sector, causing the country’s corporate landscape to change rapidly.

The Covid-19 outbreak and latest geopolitical disruptions are hastening these shifts.

We believe that understanding the implications brought about by these changes is crucial for Chinese equity investors.

Historically, the China A-share market has offered a rich source of alpha based on average active manager performance.

However, equity investors have frequently been disappointed by the market’s beta performance.

This is largely due to greater market volatility caused by factors such as the large number of retail investors in China, limited ability to hedge/short positions and the closed nature of the capital market.

However, as China’s economic transformation accelerates and its capital market opens, the nature of the beta that China brings may again evolve. We believe that an active-investing approach focusing on understanding business model sustainability and company fundamentals remains the best approach to harness potential returns in China.

For a more detailed look into some of these secular trends read our short articles below.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

    This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.