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China crisis: in or out in year of change for Middle Kingdom?


China used to be a darling of emerging markets investors. Back in 2022 I recall allocating almost 15% to China in my personal portfolio, I was that convinced of its longer term growth prospects. Those are not off the table by any means, but it seems that 2023 could be a rocky year for the Middle Kingdom.

Investors will be wondering when to time their re-entry to Chinese assets after three years of zero-Covid which has severely impacted the economy. China fund managers are naturally urging investors to get back in quickly, but we think risks still remain and they need to be given time to play out.

“Our investment horizon is typically five years and beyond, focusing on bottom-up stock picking," explains Sophie Earnshaw, manager of Baillie Gifford China Growth. "China’s recent relaxation of Covid control measures indicates a potential reopening in 2023. However, the path to reopening and economic recovery will be gradual and bumpy. The continued policy focus on quality of growth instead of quantity of growth will provide long-term opportunities in areas such as green transition, hard technology, consumption upgrade and industrial automation.”

Even Nicholas Yeo, who is the co-manager of abrdn China, expresses caution, saying "it is still early for the Chinese economy to show strong signs of recovery." And the Jupiter Asian Income Fund has apparently cut its China exposure to zero due to the concerns of fund manager Jason Pidcock.

But at the same time China has become the factory district of the world, and it was the growth of China dragged the world out of the global recession caused by the Great Financial Crisis in 2008. Here are some key factors to consider before pushing the button on a China investment in 2023.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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