China is set to return to a growth trajectory as it starts to reopen both domestically and to the world, says investment management group Ninety One.
Fiscal and monetary policies are supporting a rebound across the world’s second largest economy, Ninety One said.
The broad policy focus on stable growth is helping to boost investor sentiment, to the point where portfolio flows that have struggled amid narrowing interest rate differentials and a muted economic outlook are recovering in equities.
While risks for investors remain, including the stringent zero-Covid stance and weaker property and employment data, resilient exports, a pick-up in infrastructure investment and low core inflation relating to global levels all offer scope for optimism, says Ninety One portfolio managers Wenchang Ma and Alan Siow.
Wenchange Ma, portfolio manager of China Equities, Ninety One, said: “More and more investors are thinking about China equities as an attractive long-term structural area for asset allocation.”
Liquid, large-cap A shares, for example, are trading at a significant discount to their US peers, creating a “compelling long-term case” for China, says Ma.
Ma said: “In the context of the history of China’s equity market, the tech sector is not the first to have experienced regulatory tightening. However, healthy growth is still something that policymakers want to encourage.”
There are also opportunities to increase the representation of China bonds in investor portfolios, the firm said.
Alan Siow, portfolio manager of China Fixed Income at Ninety One, said: “While the macro drivers of growth, inflation, balance of payments and US-China relations are mostly neutral for the fixed income universe, there is policy support to offer optimism.
“The key features of China onshore bonds that have already been attracting investors in recent years still hold true. These include the potential to boost fixed income yields and take advantage of the diverse and differentiated domestic credit markets, which provide diversification and returns.”
