Sure, Buy China’s Reopening, But Do It Selectively

Sure, Buy China’s Reopening, But Do It Selectively
Theodora Lee Joseph, CFA

about 1 year ago1 min

China’s plans to prioritize its economy over its Covid battle have come a tad later compared to the rest of the world, but it’s still sent shockwaves across markets. Most notably, it’s grabbed the attention of returns-hungry global investors, who sent the CSI 300 up almost 10% in November alone. For those who missed the rally, the question is whether there’s upside left in Chinese stocks in 2023.

Surprisingly, one of China’s best-performing mutual funds, which has averaged a return of 57% this year, doesn’t seem to think so. Its managers are sticking to value stocks such as financials and energy, on the basis that China’s recovery will likely remain weak next year. Ultimately, the success and speed at which China can fully reopen its economy are dependent on how effectively it manages to contain any massive outbreaks. And if Western economies are anything to go by, it’ll be a bumpy ride.

In the long run, China’s reopening of its economy is a good thing – both for the country’s growth and for global investors. However, it’s worth bearing in mind that consumer-driven sectors like tourism, luxury, and liquor producers, which have led the bulk of the rally, could see greater downside if growth fails to materialize. If you’re looking to gain some China exposure, consider investing in the country’s infrastructure, industrials, and energy stocks – they’re driven more by government stimulus and less by the Chinese consumer. Some examples include the Global X MSCI China Industrials ETF (ticker: CHII; expense ratio: 0.66%), KraneShares MSCI China Clean Technology Index ETF (KGRN; 0.78%) or MSCI China Energy ETF (CHIE; 0.67%).



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