As China gets back on a pragmatic path, with the easing of the country’s zero-COVID and property market policies that hurt domestic demand, there are three things for investors in emerging markets to keep in mind.
With these recent decisions, Xi has acknowledged that pragmatic policies have made China rich and kept the Communist Party in power in the past, and that pragmatism is the best course for the country’s future and Xi’s own legacy, Andy Rothman, investment strategist at Matthews Asia, wrote in an insight on December 14.
“I understand that some may be skeptical about whether Xi will follow through on these three issues, but in my view, these pragmatic paths are all in Xi’s own self-interest,” Rothman wrote.
There are three key things for investors to keep in mind as China continues on this path to pragmatism.
First, China is likely to remain the only major economy engaged in serious easing of fiscal and monetary policy, while much of the world is tightening, Rothman said.
Next, Chinese households have been in savings mode since the start of the pandemic, with family bank balances up 42% from the beginning of 2020. “The net increase in household bank accounts during this period is equal to $4.8 trillion, which is larger than the GDP of the UK,” Rothman said.
Finally, Rothman said those funds should lead to a consumer rebound in China and a recovery in mainland equities, where domestic investors hold about 95% of the market.
Investors looking to gain exposure to China should consider the Matthews China Active ETF (MCH). MCH is a high-conviction equity portfolio that seeks companies benefiting from China’s domestic consumption. MCH uses an all-cap fundamental GARP approach driven by proprietary research and combines long-term core holdings with more opportunistic ideas to provide consistency through cycles.
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