In times of sharply rising prices and high interest rates, some investors in Germany are also pinning their hopes on China. Not without reason, because fears of inflation and the associated fear of a tight monetary policy are currently not an issue in the world’s second largest economy. Rather, Beijing is doing everything it can to stimulate important consumption again after the end of the strict zero-Covid policy.
According to experts, these efforts could also have a positive impact on the stock market, despite all the geopolitical tensions. It would be a relief for China investors, who have suffered significant losses in the past two years. In the past year alone, the CSI 300 index with the 300 most important stocks on the Shanghai and Shenzhen stock exchanges fell by more than a fifth, after a minus of five percent in 2021. For comparison: the MSCI World Index was also around one in 2022 fallen by a fifth, but had gained a fifth the year before.
Lots of savings in private households
“One of the factors that makes us most optimistic about Chinese stocks in the near future is the record level of household savings in the country’s banks,” said Alessandro Rollo of wealth manager VanEck recently. Hundreds of millions of savers therefore currently have little opportunity to achieve an appropriate return when building up their old-age provision outside of the country’s capital markets.
One reason for this is that the real estate market, which is so important for China, is slowly getting back on its feet after the turbulence of the previous year. At the most recent People’s Congress, the government assured “effective risk prevention” for the sector. At the same time, however, an attempt must be made to prevent an “unregulated expansion” of the real estate market.
In the year of the rabbit – which stands for peace and prosperity – which began at the end of January, consumers and investors are pinning their hopes on the new Prime Minister Li Qiang. “Li is known for his economic policy stance and has reiterated his support for private companies,” said fund manager Haiyan Li-Labbé of asset manager Carmignac recently.
End of the tough pace against tech companies in sight?
In recent years, Chinese regulators have cracked down on big tech companies. Beijing’s market power is a thorn in its side; the government fears for political stability and ultimately for its power. But there are now signs of an end to the tough pace, because the private sector should also make its contribution to the recovery of the economy after the end of the corona measures.
“The government in Beijing is returning to more pragmatism when it comes to regulation,” said Uwe Röhrig from the asset manager UBS Asset Management of the financial news agency dpa-AFX. There is less intervention than recently, because China still needs significant growth in order to increase the prosperity of the population.
But China’s companies also know that they still have to act cautiously. Example Alibaba: The founder of the online giant, Jack Ma, fell out of favor a good two years ago and recently reappeared in China after a break. Shortly thereafter, it became known that the group intends to split into six smaller units.
Excitement about suspected spy balloon
The key question on the prospects for the Chinese stock market remains whether political tensions with the US will increase. Washington intensified its crackdown on Beijing last fall and made the export of high-performance chips subject to new regulations with reference to national security. In February, a suspected Chinese spy balloon in US airspace caused trouble. A military confrontation cannot be ruled out either, as China regards the island of Taiwan as part of the People’s Republic and is threatening to conquer it.
“Due to geopolitical tensions, Chinese stocks will always trade at a discount, but this is likely to narrow this year,” Edmond de Rothschild fund manager Xiadong Bao told dpa-AFX. China and the USA have recognized that they could better achieve their goals as economic competitors than by fighting conflicts.
Star investor Warren Buffett is still cautious and has recently reduced stakes in the Chinese electric car manufacturer BYD and the Taiwanese chip giant TSMC. Buffett told CNBC that BYD is “extraordinary” and TSMC is a “fabulous company.” But the geopolitical risk between the home bases of both companies has become too great to ignore. Instead, he increased the Japanese exposure in the portfolio.
