Investing in China: what do the experts think?

Looming disaster?

China “perma-bears”, like fund manager Jim Chanos of Kynikos Associates, have been predicting a full-scale “China crisis” for years, said Niall Ferguson on Bloomberg. Could the saga of Evergrande – the embattled property giant–mark a turning point? If so, plenty of foreign investors are “on the wrong side” of the bet.

In the 15 months to June 2021, they poured $527bn into Chinese stocks and bonds – with much of the cash finding its way, “via the offshore dollar bond market”, into high-yielding real estate debt. Funds holding Evergrande debt include BlackRock, Fidelity International, and UBS Asset Management. Millions of retail savers are exposed to the wider market via China, Asian and tech funds.

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The veteran financier George Soros recently warned that investors face “a rude awakening”. It’s hard to disagree. The crackdown on property is just the latest blow President Xi has struck against “capitalism with Chinese characteristics”. Investors ignore this “anti-capitalist turn” at their peril.

Handbrake turn

Xi’s “handbrake turn” against private business has triggered “a precipitous fall in the stock market valuations of tech, digital and other companies”, said George Magnus in the FT. Shares in Didi, the ride-hailing app listed in New York, are down more than 40% since its June IPO.

There’s also a risk for Western stocks, said Wendy Ye and Evelyn Cheng on CNBC. As a Bank of America note outlines, Xi’s crackdown has clear implications for luxury companies and racy car stocks like Tesla.

Scenting bargains

Still, that doesn’t mean investors should kiss China goodbye, said Dave Baxter in Investors’ Chronicle. “Contrarian” fund managers have already “scented bargains”.

In July, the global value fund manager Hugh Sergeant described Baidu, the hammered internet search company, as “the cheapest megacap I’ve ever seen in my career”.

Other bulls spy an opportunity to back sectors aligned with Xi’s aims “of building a fairer and more productive economy”, said the FT. Hot themes include renewable energy, healthcare and artificial intelligence.

When it comes to China, observes Justin Thomson of T. Rowe Price, the cardinal rule “is to be on the right side of government policy”.