Keep calm and carry on: Geopolitical risk is already priced into Chinese equities
Chinese President Xi Jinping, front centre, is applauded as he arrives at the 20th National Congress of the Communist Party of China at The Great Hall of People in Beijing, China, October 16 2022. Picture: GETTY IMAGES/KEVIN FRAYER
Similar falls were noted in other China-heavy companies such as like Naspers, parent company of Tencent, which was hammered that day, falling as much as 17%. On the other hand, locally listed China A shares were far more resilient, down only 2%. So, why the panic? The macroeconomic environment and market weakness may prompt the Chinese government to roll out more pro-growth policies.
For example, a recent Bloomberg article estimated that it would take Apple eight years to move just 10% of its production capacity out of China. Apple is not the only company that will be affected in this way. Almost all manufactured products consumed by the West have Chinese-manufactured inputs or components. It took 30 years to move manufacturing to China, and it will take a long time to reverse this — if it is possible at all.
Hong Kong’s recent move to remove quarantine requirements for international travellers and Macau’s reopening to tour groups from mainland China are further positive signals to a gradual reopening of the country.While it is important to understand the macro environment and watch out for policy changes, we believe Chinese equity markets offer a wealth of opportunities and the managers we work with are seeking exposure to select high-quality Chinese businesses.
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