China equities have surprised on the upside, but be nimble and agile
China’s economy will continue to grow in the second half, and earnings as well
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AS THE world’s second-largest economy, second-largest bond market, and second-largest stock exchange by market capitalization, positive or negative shocks in China can ripple across the globe, influencing those closest to the epicentre first; but touching even distant markets and economies over time.
Right now, China is facing its most serious set of challenges in a generation. The collective economic damage wrought by its self-inflicted zero-COVID policy; accelerating disinvestment by international companies over rising wages and supply chain security; and a property sector crumbling under the weight of its own debt, have profoundly disrupted China’s long-term growth model and near-term economic outlook.
Paradoxically, it was the scale of the challenge and breadth of the risks facing the economy which encouraged us to go overweight China equities in mid-March. In our view, China was incapable of organically growing its way out of trouble. Rather, the only way to arrest the decline was through massive, policy-induced intervention in the form of fiscal stimulus and monetary easing. And so it has come to pass.
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