Investment Strategies

How Should US Investors Approach Chinese Equities Market?

Charles Paikert, New York, April 15, 2021

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US investors are arguably under-invested in Chinese equities and should change to diversify. But China's regulatory landscape and corporate governance - or the lack of it - are big concerns. Trade tensions, such as over Beijing's treatment of Western intellectual property, remain. This article delves into what investors should do.

Investors need to be more aggressive when considering Chinese equities, say investment executives, while not ignoring the abundance of corresponding risks.

“In our experience clients are under-allocating to China relative to the size of the opportunity,” Alejo Czerwonko, chief investment officer, emerging markets Americas, for UBS, said. However, he added, “there are no shortage of long-term risks.”

Nonetheless, China’s “extraordinary” economic transformation simply can’t be ignored, Czerwonko maintained. China’s equity markets capitalization has increased by around 25 per cent in the past 20 years and now makes up about 11 per cent of total global market capitalization, he noted.

Now the second largest economy in the world, China accounts for about 20 per cent of the world’s economic output and close to one-third of annual global GDP growth.

A recently-published UBS report Investing in China: Opportunities for global investors notes that China, whose population of 1.4 billion is four times larger than the US, is spending twice as much on research and development than the US, has twice as many supercomputers and nearly 500,000 more industrial robots.

What’s more, China accounts for 57 per cent of the global e-commerce market and is expected to soon introduce a digital currency, leading a transformation to a cashless economy. Also, the renminbi is now the eighth most traded currency in the world and is poised to become a key international reserve currency.
 

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