The Animal Spirits Of Chinese Equities

China equity funds are off to a strong start in the Year of the Ox 

 The Year of the Ox is but a tottering calf, so now is as good a time as any to cast a (bull’s) eye over Chinese equity funds. Puns intended, and no hint of an apology. 

Last year, Chinese small and mid-caps were the best-performing fund category, returning more than 70%. This was met with huge enthusiasm, as UK investors put all of £1m into this category. That is ‘million’, yes. China equity, which delivered more than 30% over the same period, did rather better in terms of flows, at more than £1bn for both Equity China and Equity Greater China Lipper Global Classifications.   

What, then, can investors expect from Chinese equity funds in the Year of the Ox? 

China was the one major economy that came out of 2020 (broadly aligned with the Year of the Rat*) with positive GDP growth, and is expected to rebound strongly. 

You may be as skeptical of the veracity of Chinese data as you are of horoscopes, but cast your eye around the office or home (the same things these days) and count the sheer amount of stuff that issues from China. That gives an indication of the options open to investors in China—whether Tencent or cement.  

 A Cunning Plan  

As Joachim Klement observes, the ancient Middle Kingdom is faced with escaping from the middle-income trap. It has a plan—Made in China 2025—to address this, bound up with the much-vaunted New Silk Road. China has a strategic position in the global economy that no other outside of the global north elite nations ever has. And it is moving up the value chain, having been the largest buyer of industrial robotics since 2014, for example. It is the regional center of gravity, as Asia’s return correlations with China have increased in both equity and foreign exchange markets since the global financial crisis. There should be more to come, as China is underweight in equity and bond indices relative to its GDP.  

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