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7 reasons to invest in China – for the long term

10 February 2019

David Coombs, manager of the Rathbone Multi-Asset Portfolio funds argues that investors’ views on China are behind the times. Here he gives 7 reasons clients should consider investing in this global GDP powerhouse.

1. Recent data on China and the ongoing trade war have brought out the bears but whilst current negative sentiment may hang over the market, we are looking longer-term. There is no disputing the size of the Chinese economy and the sheer level of demand from Chinese consumers.

2. China has come to an interesting crossroads: it is no longer an underdeveloped nation hustling its way to affluence. While much of the country is poor and lagging behind technologically, as a nation China has arrived as a major global power. This is true economically, militarily and culturally.

3. Hundreds of millions of Chinese now live in some of the world’s largest metropolises, many of which didn’t exist a generation ago. About 60% of Chinese people live in urban areas today; 24 years ago, 60% Chinese lived in the countryside. The expansion in China’s economy and wealth has been breath-taking.

4. Investors need to look at China as an allocation in its own right. At the moment, China gets lost in the ’emerging markets’ allocation. This seems out of date to us. Spending hours debating whether to switch 1% from the US to Europe due to short-term valuations, while ignoring one of the biggest swing factors in global GDP growth cannot be right.

5. We are investing in this market through the ChinaAMC China Opportunities Fund to gain broad exposure to the types of companies we like, and directly in Chinese companies were we find opportunities. Our approach is to invest through first-class local companies, or Western companies that understand China – those that design, promote and distribute goods or services into China, specifically aimed at local tastes and culture.

6. China has tried to continue snubbing internationally-recognised intellectual property rules and trade laws that are generally agreed at the top table of geopolitics. This will become more difficult as time goes on; you’re seeing it now, for example with President Trump’s trade vendetta. China doesn’t need to rely on corporate skulduggery or questionable practices to succeed. In fact, these old habits are now probably hindering the nation. That realisation can only be a good thing;

7. There are many Chinese businesses that continue to present compelling opportunities with less sensitivity to US/Sino trade relations.

Coombs says: “China is seriously underestimated by the West, having been the cause of much excitement not so long ago. There’s an entrepreneurial spirit in China; from youngsters working furiously to better themselves to the massive businesses like Tencent and Alibaba that have risen like shooting stars above the modernised Chinese economy.

“We believe that over the medium to long term we should be investing in this market and there are numerous opportunities through the best Chinese companies or Western businesses that understand China and embrace local management, empowered to design local product, rather than just executing decisions from the headquarters in developed markets.

“Seems obvious – it’s not. There have been so many poorly executed forays by Western giants that we’ve lost count.”

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