Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Despite authorities taking their foot off the environmental, social and governance pedal and recent volatility in equities and bonds, the benefits of Artificial Intelligence and improved investor transparency are just beginning.
Why investors can’t write China off yet
Wenchang Ma, Hong Kong based co-portfolio manager for Ninety One’s All China Equity Strategy, says that investors need to stop looking at China through a “Western prism” that ignores the systematic differences and understand that the country is moving away from property and towards more sustainable economic growth.
“Socio-economic factors such as a rising middle class driving consumption growth, its concerted push to achieve technology self-sufficiency, its transition to renewable energy, state-owned enterprise (SOE) reform and its continuing integration with the global economy are all critical to this exciting long-term investment narrative,” Ma told the JANA annual conference.
Ninety One predicts that, alongside rising incomes that will see 380 million households with annual disposable income of more than US$25,000 by 2035, consumption will more than double in the next decade to US$19.2 trillion from US$9.6 trillion today. China’s research and development spending is also catching up with other countries.
“In 1996, it was less than one per cent of GDP – on par with India and way behind US, Germany, the UK, and Japan,” Ma said. “By 2020 it has left India way behind, overtaken the UK and was closing in on the other three developed countries with its R&D spending approaching three per cent. Regarding international patents, China is now the global leader with its applications overtaking the US, Germany, the UK and Japan.”
China is still the global leader in the renewable energy supply chain by “a considerable margin”, and while coal-fired energy still accounted for around 68 per cent of China’s internal energy needs in 2020, renewables will comprise around 41 per cent by 2025 and coal will be phased out by 2060 in favour of wind, solar, nuclear and hydro.
Ma also expects reform of state-owned enterprise to continue ap[ace, and that China will further integrate into the global economy.
“However, the increasing value of its exports will come with a changing geographic tilt towards countries perceived to be ‘friendly’ or ‘neutral’ towards China,” Ma said.
