When Claus Born, Senior Client Portfolio Manager at Franklin Templeton, arrived in Shenzhen, one of China’s most modern cities, he was impressed. Not only by the ultra-modern metro and the electric vehicles that dominated the streets, but also by the innovative strength of the companies. He was particularly impressed by a logistics company that stored tonnes of frozen goods in huge refrigerated warehouses, as well as the electric car manufacturer BYD, which has long since gained importance not only in China, but also in Europe and the USA. Despite the many negative headlines about China, Born sees positive developments that give cause for optimism as follows:
Positive developments and opportunities for investors:
- Technological advances: China is a leader in e-mobility and is embracing cutting-edge technologies that are invigorating not only the Chinese market but also the global competition. Companies like BYD are expanding worldwide and are leading the way.
- Corporate innovation: Born emphasises how innovative many Chinese companies are. From healthcare to logistics, they are showing a high degree of adaptability and foresight. This opens up interesting opportunities for investors, as many of these companies are favourably valued.
- Attractive equity valuations: After several years of price corrections, Chinese equity markets are very favourably valued. Companies with solid fundamentals offer investors good entry opportunities, even after the recent market rally.
- Government measures to stimulate the economy: The Chinese government is stepping up efforts to boost growth. Interest rate cuts, relaxed credit conditions and measures to support the property market indicate a serious intention to drive economic recovery.
But there are also some challenges which he identifies as follows:
- Property crisis: A large proportion of China’s private wealth is invested in property, and the ongoing crisis in this sector is weighing on consumer behaviour. Prices are falling and many Chinese feel poorer, leading to a higher propensity to save.
- Uncertainties in consumer behaviour: The wealth effect triggered by the real estate crisis and the aftermath of the strict COVID lockdowns have dampened consumer behaviour in China. Expectations that the Chinese would return to mass consumption once the pandemic was over have not been fulfilled.
Despite these challenges, Claus Born remains optimistic. The government has recognised the problems and is actively countering them, which represents an opportunity for investors to benefit from a potential recovery at an early stage.
