Is China Coming Back With a Bang?

Executive summary:

  • Chinese equities are extremely cheap and priced for bad news. We believe this environment may present opportunities for active managers.
  • Valuation-focused and contrarian, opportunistic managers are rotating into China, focusing on beaten-down internet platforms and domestic consumer-oriented plays within travel, tourism and premium domestic brands linked to discretionary spending.
  • Some active managers believe that the political leadership’s focus on the economy and stock market could be the catalyst for a potential turnaround.

Is China coming back with a bang?

Chinese equities were one of the bigger laggards of 2023, with the MSCI China Index down 11% while the MSCI All Country World Index was up 23%. Taking a longer time horizon, Chinese equities (using the MSCI China Index) have underperformed developed market equities (using the MSCI World Index) by 65% since the end of 2010.

The Chinese economy limped through the second half of 2023, after a brisk reopening in the first quarter. The headwinds of a struggling property market and cautious consumer remain in place, but in the last three months, we have seen the Chinese government respond with an increased focus on fiscal stimulus.