“China is the only country today which is trading at this cheap valuation. While other countries are facing some or the other problems, not what China is facing but at least on the inflation side. China is a country where there is no inflation worry. It is probably the only central bank which is cutting rates trying to stimulate the economy,” says Niranjan Avasthi , Sr. VP & Head – Product, Marketing, Digital and Corp Communication, Edelweiss AMC
China’s economy is slowing down with its zero Covid strategy and weakening global demand. We are looking at heavy losses in the one-year time horizon. What would be the reason to stay invested from an investor’s point of view?
The problems in China are very different from what is going on in the world. Just to give you a background of what is happening in China over the last one-one and a half years, till the beginning of 2021 China was doing very well and it was one of the best performing equity markets over the last two-three years till early 2021.
At that point in time, the entire world was battling with pandemic issues. China was one region which was out of that worry and the government was stimulating the economy and it was doing very well. Over the last one-one and a half years, the government said that it is taking the equity dividend and using it to get some regulations in place especially on the tech side.
It all started with that when the equity market especially the tech side of China market started feeling nervous and investors started testing tough times post that. More recently, two more developments have happened in China. After a very long time, China had seen a few spikes in Covid cases and as we know, China has a very strict zero Covid policy and because it is a socialist government, they have a very stringent policy around it.
They have got a lot of lockdowns because of which the GDP growth had taken a hit and the normalcy was not there over the last couple of months or quarters.
The third point is what is happening in the China real estate market. The real estate market for China is very important because it forms almost 70% to 80% of its GDP over there. It is a clear sign of slowdown and these are the three reasons why over the last one-one and a half year, the greater China region has not been able to perform well and has been an underperformer.
Over the last one year, however, it is down mostly in line with other international funds, especially the US focussed funds or international focussed funds. However, if you calculate the performance since the last one-one and a half years, it is down a bit more – may be around 15-20% more than other international funds for the reasons which I just alluded to.
You highlighted the most stressing points from an investor’s perspective but as we all know, that this fund invests in JP Morgan Greater China Funds and equity portfolio that has diversified investment approach of companies which are in China and Taiwan region. Given the current political tussle between these two regions along with the slow growth, where does it leave the fund in the changed economic outlook?
The stance of the Chinese government is not new and over the last two-three years, China has realised that their dependence on exports needs to come down and that is the reason China is working more towards getting the economy back on track.
We are seeing a domestic consumption story because China has a huge population and over the next few years, they are going to add almost a half a billion middle class population to their kitty which means there is a huge consumption story which is building up in China and the government is focussed there.
The second is because of the US-China trade war, the Chinese government has become self-sufficient in terms of technologies. Semiconductors are the new oil for economies now and that is where China has been focussing more. It is focussing more on building self sufficient technology. The import of chips has reduced a lot in China, they are becoming self sufficient and this fund particularly is largely focussed on what China can do over the next few years, looking at the threats of trade war and the China plus one policy, where some of the manufacturing partners of China are […]
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