Investing in strategic sectors, aligned with China’s development policy, could make it possible to take advantage of the economic transformations underway.
Faced with deflationary pressures, China has recently implemented monetary and fiscal measures to revive its economy.
However, these efforts, although encouraging, do not seem sufficient to remedy the situation alone. On the other hand, the US elections could reignite trade tensions, leading to new tariffs and a devaluation of the renminbi, the Chinese currency. In this context, carefully selecting stocks likely to benefit from this new environment becomes crucial.
The Chinese equity market still offers upside potential.
Indeed, despite an increase of 40% since the low point in September1several factors support this optimism:
- Chinese stocks remain undervalued compared to those of the United States2offering opportunities for revaluation.
- While corporate profits are not yet rising, long-term investor confidence is increasing.
- Investors hope new reforms and stronger government support will fuel growth.
Trade tensions and opportunities in the Chinese market
Under Trump, tariffs could reach 60%, increasing pressure on a Chinese economy dependent on exports. Harris could opt for a more gradual approach, targeting strategic sectors such as technology. In response to these risks, China has strengthened its trade partnerships, particularly with emerging markets, reducing its dependence on the United States.
In addition to its dependence on exports, the Chinese economy could suffer another impact: the weakening of its currency. Fiscal stimulus in China could weaken the renminbi, especially if Trump wins and increases tariffs. Under Harris, the weakening may be slower, but nonetheless inevitable.
As for the bond market, yields on Chinese government bonds remain low, which could limit their appeal to investors. However, increased government spending could cause yields to rise slightly in the future.
Whatever the outcome of the US elections, the Chinese stock market offers investment opportunities. Structural reforms targeting the labor market and real estate could improve business conditions for Chinese businesses and consumers.
These reforms, combined with government support for strategic sectors such as technology and green energy, could also be an engine of long-term growth. Investing in these strategic sectors, aligned with China’s development policy, could make it possible to take advantage of the economic transformations underway. However, even within these promising sectors, there will be winners and losers. The key lies in rigorous selection, supported by a robust process and an experienced team capable of identifying the best opportunities. Our strategies invested in equities from emerging countries offer solutions adapted to seizing the challenges and opportunities of these strategic sectors and benefiting from the long-term growth potential for investors.
1Source: Bloomberg, performance of MSCI China in dollars, between 09/09/2024 and 07/10/2024. As of 09/10/2024, the performance since this low point was 27%. Past performance, simulations of past performance and predictions of future performance of any financial instrument, financial index, investment strategy or service are not a reliable indicator of future performance and are not guaranteed.
2Source: Bloomberg, performance gap between the MSCI China and the MSCI US in dollars, 56% over three years and 108% over five years, as of 09/10/2024. Past performance, simulations of past performance and predictions of future performance of any financial instrument, financial index, investment strategy or service are not a reliable indicator of future performance and are not guaranteed.
DISCLAIMER
This material is provided for information and educational purposes only and may contain Candriam’s opinions and proprietary information. It does not constitute an offer to buy or sell financial instruments, nor investment advice and does not confirm any transaction, unless expressly agreed otherwise.
Although Candriam carefully selects the data and sources used, errors or omissions cannot be excluded a priori. Candriam cannot be held responsible for direct or indirect damage resulting from the use of this document. Candriam’s intellectual property rights must be respected at all times. The contents of this document may not be reproduced without prior written consent.
This document does not constitute investment research as defined by Article 36(1) of Commission Delegated Regulation (EU) 2017/565. Candriam emphasizes that this information has not been prepared in accordance with legal provisions promoting independent investment research, nor is it subject to any restrictions prohibiting the execution of transactions prior to the dissemination of the investment research.
This document is not intended to promote and/or offer and/or sell any product or service. It is also not intended to solicit any request for the provision of services.
Related News :