Is now the time to invest in China?

It's been a difficult few years for investors with cash in Chinese Equities. The benchmark CSI 300 Index, which tracks the top 300 stocks listed on the Shanghai and Shenzhen Stock Exchanges, had sunk more than 45% since hitting a peak in early 2021. It seemed global investors lost confidence in the world's second-biggest economic superpower. 

But in early February, on the announcement that China’s sovereign wealth fund and China's Securities Regulatory Commission would be stepping up their purchases and introducing increased regulation, local benchmarks rallied hard.  

Since then, the CSI 300 Index has rebounded around 6%. The Hang Seng (Hong Kong's main stock market index) has lifted around 4% over that same period. 

So is now the time to reconsider investing in Chinese equities? Particularly, given that locally-listed equities are still a long shot from recovering the losses made over the past three years? 

In this episode of The Pitch, Livewire sat down with VanEck Australia's Alice Shen for a deep dive into China's debt, deflation and property crisis, as well as why she believes Chinese equities could be in for a rebound in the Year of the Dragon. 

Note: This interview was filmed on Tuesday 13 February 2024. You can watch the video or read an edited transcript below. 

Edited Transcript 

Alice Shen: So China's labour market is facing a skillset mismatch at the moment. On the one hand, you have university graduates who would like to opt for white-collar jobs. But on the other side of the equation, the private sector growth has been stagnant for the past few years. Not only from the pandemic but also the ongoing policy risk overhand. From our perspective, we think that a more supportive tone from the top to these private sectors will be a very good first step. And from there, entrepreneurs will be more encouraged and more willing to start developing, innovating, as well as investing back into the economy.

Ally Selby: You talked about quite a lot of risks on the horizon for China, and there's obviously a lot going on there, but valuations are incredibly cheap right now. Is the Chinese economy too big for investors to ignore?

Alice Shen: China's equity is trading below 10 times on a forward P/E basis, and it is at the fifth percentile at the moment. So that looks attractive. Even some of the new economy sectors such as healthcare and IT are trading on historical lows as well. So there's huge potential there and we believe that China could be an opportunistic buy for the year of Dragon.

Ally Selby: Does that have an impact on Australian investors? Some of our biggest companies have exposure to China. How does that impact us as local investors?