Catch the signal of the Chinese market in the second half of the year. It’s time for the Chinese army to leave the factory.
Date 27 Jun 2022 at 06:31 a.m.
After the Chinese stock market dropped quite a lot. As a result, investing in the Chinese stock market has started to become more attractive.
The Chinese economy in the past 2 years has been able to grow steadily. Because the Chinese government has been able to cope well with the COVID-19 epidemic situation, the overall economy has been less affected than other countries. However, the investment outlook is not as bright as expected. Because the Chinese stock market has been under pressure from many factors. As a result, the stock market’s returns are highly volatile. The factors that have affected the stock market in the past 2 years are as follows:
1) Concerns about the situation of default in the real estate sector This reflects the problem of high debt levels in China’s economy. It also resulted in the Chinese government being unable to relax monetary policy to stimulate the economy as much as other countries.
2) The issuance of the China Common Prosperity Policy with the aim of major economic reforms. Emphasis on creating more equality both income distribution narrowing the gap between rich and poor and improve the quality of life of the people in the country to be better These policies have had a negative impact on a number of business sectors, such as those related to Technology, Internet, Property, Financials and Healthcare. Tech-related companies in particular are more likely to be impacted by access restriction and time limit policies. public use, etc.
3) Zero-COVID Policy: Strictly control the outbreak of COVID-19 by declaring lockdown in various areas in Jiangsu, Jilin, Guangdong, Shaanxi, Shanghai, which are the country’s important production bases in many industries such as chemicals, industrial wood and computers, etc. All three factors above have affected the expansion of the Chinese economy. And earnings of listed companies on the stock market were lower than expected in the past.
After the Chinese stock market dropped quite a lot. As a result, investing in the Chinese stock market has started to become more attractive. There are several supporting reasons. First, the Chinese stock market price has already reflected much of the bad news. MSCI China’s price index (Max drawdown) from the 2021 peak in Feb. 2021 to the end of May 2022 has dropped by more than -45%, which is very high compared to The average correction since 2007 has averaged a decline of about -37%. Second, the valuation of China’s stock markets has dropped to an attractive level below average. Analysts also predict that earnings of listed companies in technology-related areas, especially the Internet, are likely to be near their bottom. Third, Chinese stock markets tend to improve before the Communist Party delegation meeting. China’s National Party (The National Party’s Congress) since 1997, of the five preceding China Stock Exchange meetings. an average increase of about 20% in the period 2 months before the meeting A new meeting will be set up at the end of 2022. Fourth, the number of COVID-19 cases is declining. This led the Chinese government to begin easing its Zero-COVID measures, which are expected to have a positive effect on overall economic activity. And lastly, it is expected that the stock market will receive additional positive factors from the announcement of the share repurchase of listed companies. Capital is expected to reach $35.9 million, or 19% of free float adjusted market capitalization, likely to benefit many companies and Chinese stock indexes going forward.
Over the long term, the Chinese stock market remains a very attractive region for investment. From the following supporting factors, the first factor is that the Chinese economy still has high growth potential. It is expected that China’s economy will overtake the United States in 2027-2028, and its economic size will more than double in 2035. The second factor is the economic structure that supports high competitiveness. With a population of 1.4 billion people, it is estimated that the middle class population will grow by more than 45% by 2025. This population will be the backbone of China’s future economy. to drive domestic demand to grow stronger and build confidence in the investment of the business sector in the future And the third factor is to be a leader in technology development. and innovation of the world According to the data, China attaches great importance to technology development. China’s R&D investment is very high compared to other countries, accounting for about 2.5% of GDP. It is also a leader in electric vehicle (EV) production and clean energy use.
However, investments in China still have risk factors that need to be monitored from 1) the implementation of the COVID-19 epidemic control policy in China is more stringent than other countries. This may create a risk to China’s economic growth prospects. 2) Government measures to control the real estate sector. As a result, real estate sales in China have contracted continuously since the middle of 2021, with the tendency of defaulting on debts of domestic companies expanding. 3) The relationship between the United States and China is still tense due to competition in technology and capital markets. that may have a tendency to expand the scope to national security and 4) the use of opposite monetary policy between the United States and China may tend to cause capital outflows from China that cut interest rates. and there is a risk of depreciation of the yuan
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