Marco Li

Market Outlook

China Outlook


Latest Chinese economic and market outlook. 


There have been several major positive developments in China in recent weeks. If we rewind to early 2022, Shanghai was locked down, geopolitical tensions were flaring up after Putin’s invasion of Ukraine, and there was a serious prospect of US-listed Chinese stocks being de-listed. Meanwhile, the Chinese property market was in crisis, and equity markets were at significantly higher levels than they are now. Fast-forward to the present day, and China is now rapidly pivoting away from its zero-covid policy. Sino-US geopolitical tensions have improved slightly, with Presidents Xi and Biden holding a three-hour meeting at the G20, and Chinese officials hinting that Beijing is putting together policies aimed at improving diplomatic ties. In other positive news, the US-based Public Company Accounting Oversight Board announced that it had received all the necessary information to prevent a forced de-listing of US-listed Chinese companies in the near term. At the same time, the real estate sector is now being essentially underpinned by the government, and Chinese equities – despite their recent rally – are trading at a significant discount to other major markets.

Clearly these developments have not escaped the attention of investors; Chinese equities have duly rerated, led by stocks that are seen as the biggest beneficiaries of reopening. We have taken advantage of this rally through holdings such as online travel agent, but the speed and scale of the move is now arguably getting ahead of fundamentals, and we are beginning to harvest profits and rotate into more attractively valued second-derivative beneficiaries such as offline businesses that actually require physical traffic to come through the shop door.

Our base case is that, following the rally, there is still significant market upside due to earnings growth and a multiple rerating from still depressed levels. In many ways we expect a year of two halves, with Chinese domestics initially performing well due to reopening, as well as the fact that wage inflation in the developed world looks stubbornly high, which could lead to the Fed leaving rates higher for longer than the market currently expects, weakening the external environment. However, global demand should pick up once the Fed does pivot, providing a tailwind for Chinese exporters later in the year. 

Important Information: 

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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