Chinese stock exchange investors exchange expensive brands with mass-market companies, while big tech names change with smaller giants. It aims at raising funds for President Xi Jinping’s overall welfare plan for the economy.
Xi’s goal is to thin the gap between the rich and the poor in the world’s second-largest economy. The first policy disrupts the markets as the government introduces new heavy regulations on industries such as property, private education, technology – which has caused shares in these sectors to fall. Some active fund managers were avoiding China at this time. Yet, many people see an economic opportunity aimed at a more extensive and more affluent middle class.
According to Ronald Chan, head of Asian stocks at Manulife Investment Management, Chinese policymakers are debating how to move from a pear-shaped economy that is light at the top and heavy at the bottom to an olive-shaped economy.
Overall prosperity implies China’s desire for self-sufficiency in energy and technology. According to Chan, the country wants the industry to rise in the value chain. Ronald is concentrating on acquiring Chinese solar companies and not on an expensive alcohol brand.
Last year, Manulife’s Chinese foundations reportedly cut their holdings in tech giants like Tencent and Alibaba.
It is difficult to determine how large the total investment fluctuations were; Especially since passively managed funds continue to search for the heavyweight of the stock index. However, the market movements were sharp.
China’s property sector has fallen by more than 10%, while the new energy index has risen more than 70% this year. It is noteworthy that technology companies that offer solid products to consumers perform better than soft technologies such as online providers.
KraneShares CSI China Internet ETF fell by almost 40% this year. ChiNext in China Startup Forum grew 13%; And with the Shanghai technique, the heavy STAR market barely fell.
William Sterling, GW&K Investment Management’s global strategist, invests in emerging markets, including China, and noted extreme attitudes towards China. Is it investable? Is it going back to Maoism?
Sterling notes that it is unlikely that the government will want to throw off the economic dynamism created by the country’s capitalist engine through new policy initiatives. Sterling predicts that Chinese consumer stocks will make a profit from the growing middle class. However, it avoids real estate firms and related sectors such as steel.
Goldman Sachs Choice
Goldman Sachs has selected 50 “common welfare” stocks in the sectors. These include solid technology, green and renewable energy, high-end manufacturing and mass, yet unique consumer brands. The list consists of chip manufacturers Hua Hong Semiconductor, Will Semiconductor, and local brands such as Xiaomi, Li Ning, and green energy companies Xinyi Solar and LONGI Green Energy.
Goldman advises investors to avoid sectors that are vulnerable to regulatory resistance. These include education, soft technologies with high data intensity, luxury consumption, media/entertainment. Investors are already flocking to chipmakers and electric vehicles.
The Benefit of the Common Good
This year, China Universal CSI New Energy Vehicle Industry Index ETF saw its assets almost triple to $1.41 billion. Guotai CES China Semiconductor Chips ETF about doubled in AUM.
Societe Generale has a standard welfare basket consisting of 30 stocks and includes consumer companies such as Anta Sports, China Tourism, Gree Electric, and tech firms including Nari Technology and Luxshare Precision.
In the medium term, the “common welfare” will improve the purchasing power of low- and middle-income groups in China. Accordingly, it will benefit consumers and such sectors as food, tourism, healthcare. In the long run, a properly regulated business environment will help all investors to ensure a path to sustainable growth.
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