It was the place to be according to all investment companies in the midst of the boom in the economic growth figures of the world’s second largest power, and advisors recommended allocating up to 10% of the portfolio to the Asian giant for the most aggressive profiles. But the reality is that if an investor has been patient and maintained his positions in Chinese stocks over the last decade, he has stopped making money based on the expectations created, to the point thatChinese 10-year equity funds are gaining an average of 0.50% annualizedOver a five-year period, the performance is less good, since we lose 4.58% at an annualized rate, and after three years, we see a drop of 15.62%.
These heavy losses are in line with the debacle experienced by the CSI 300, the main Chinese stock index, which groups together companies listed on the Shanghai and Shenzhen stock exchanges, which has lost 44% compared to the highs it reached in 2021. managed to reduce the decline to less than 6%, but it is accumulating strong declines compared to previous years, although last year it closed with a profitability of 16.65%.
This extreme volatility is due not only to geopolitical factors, such as the trade cold war with the United States, but also to other factors related to the Chinese economy itself, such as the real estate crisis that continues to be the main concern of investors due to doubts about its true extent to the rest of the market. And this has caused a flight of investment flows to other economies such as India, which are gaining ground among the large emerging countries.
The measures adopted by the communist regime to stabilize the real estate sector, which represents about 30% of China’s GDP, have had an impact on prices, which have fallen sharply, but have not been able to dispel the ghost of bankruptcy of companies. . developers, some of which have been forced to close. The limitations imposed by the North American authorities for the Asian giant to restrict access to key technologies for the development of certain semiconductors have also slowed down investment in China.
In this landscape, is it time to maintain or increase positions in China by taking advantage of its low valuations? Ji Zhang, emerging markets analyst at Loomis Sayles (a subsidiary of Natixis IM), does not believe so yet. “We think investors may be too hopeful about a quick rebound as the country faces a weak macroeconomic backdrop and persistent regulatory hurdles. In our view, investors should be selective and favor high-growth, sustainable and profitable areas in the long term.” sentiment and valuation do not reflect unrealistic expectations,” says Zhang, for whom Finding quality investments in China is even more difficult today because of the obstacles Western investors face when visiting China. and the reluctance of businesses and experts to answer questions outside of face-to-face meetings.
Among these sectors is the technological one. “It software Professional semiconductor and analog designers are examples of sub-sectors that we believe are well positioned to benefit from localization trends, avoid geopolitical constraints and have moat “proven,” the analyst emphasizes.
And while the rebound in some Chinese stocks could encourage the idea of growth in many Chinese companies, Zhang urges caution. “After a recent trip to the country, I think headwinds persist and high expectations can pave the way for disappointments,” he says.
Among the best-performing ten-year funds are Vitruvius Greater China Equity B and FSITC China Century Fund-TWD, with returns of 7.21% and 5.32%, respectively. Another way to invest indirectly in China is through emerging market funds, which logically hold a significant portion of their portfolio in Chinese companies.
