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26 March 2021

Kung Hei Fat Choy

While the rest of the globe is already three months into its calendar new year, those observing last month’s Chinese Lunar New Year will be hoping the famed new year greeting – “wishing you to make lots of money or a fortune” - will hold true to its translation. Rather fittingly, this year’s zodiac - the Ox – gives an appropriate depiction of the bull run ensuing in the region’s investment markets. The Chinese Government all but quashed the Coronavirus in short order, allowing its economy to open back up sharply, while the rest of the world still reels in its fallout.
 
As UK investors, we have watched in awe over the years at the meteoric rise of the Chinese economy. Throughout the 20th century, the country has transformed from the “sick man of Asia” into the second largest economy in the world, eradicating much of the poverty that plagued the nation’s poorest regions. Today, an affluent middle-class live within China’s abundant metropolises that burst with innovation. Though investment in China has been met with a little more hesitance, fears of a volatile political landscape and its emerging economy status have held it back from being a standalone allocation in portfolios. We think this is changing, and if the last year has taught investors anything, it is to diversify the risk and return drivers in a portfolio. As a near self-sustainable and domestically focused economy, we are seeing more than ever the benefits of investment exposure, when global markets are otherwise interlinked to the pitfalls of its key economies.
 
To facilitate the wave of investment capital, the Chinese Government has been tentatively opening its markets to the world. At the same time, policymakers have been keen to increase the attractiveness to foreign investors, relinquishing state control and aligning Chinese business to internationally recognised standards of corporate governance (See: Corporate Governance in China). There is still a long way to go, and now, more than ever, the spotlight is being shone on the country’s record in corporate interference. After criticising the government’s finance policies earlier in the year, Jack Ma (founder of Alibaba) disappeared from public for two months, raising concerns over the influence of the State. It is a sign that investors still need to be comfortable with state-control and oversight, which ultimately has the potential to limit innovation and growth prospects.
 
Innovation will continue to be key if China is to affirm its dominance in technology companies. Posting a record month for Initial Public Offering (IPO) raisings in January, the markets are full of new ideas across the sector, pushing for subscription-based online services to rival their behemoth counterparts in the US (See: New Year & New Dawn). Though, like the US, the region is not immune to stock market mania and potential eye-watering share price rises… and falls.
 
We now watch closely as the world emerges bruised from the pandemic, and China provides some certainty to its outlook. The Chinese version of communism remains prevalent, meaning some investors will struggle to get comfortable with the political system, but it offers a true opportunity for the next decade and beyond that is worth considering.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Kung Hei Fat Choy
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