The China opportunity

Much is changing in China and this has material implications for all investors, whether individuals or large, and or sophisticated institutional investors. The cost of ignoring this emerging opportunity might prove too high, especially over the longer term.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Risk: Investments in China are subject to certain additional risks due to issues relating to liquidity and the repatriation of capital

Arch gateway to a bridge in a Chinese garden

The role of Chinese assets

May 2021 | Strategic rivalry and geopolitical tensions between the U.S. and China is creating a bipolar world. We believe investors need exposure to both spheres of growth to help meet their long-term goals.

For Professional Clients and Qualified Investors Only.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Investments in China are subject to certain additional risks due to issues relating to liquidity and the repatriation of capital.

Why China?

Lucy Liu, portfolio manager, shares her views on why now is an interesting time to look at Chinese equities and to which sectors she is paying close attention.

Why China?

With over 4,000 listed companies, the Chinese stock market offers access to all aspects of the economy and allows investors to benefit from this fast-growing, comprehensive and under-owned asset class.

We see even more potential in China over the coming years as the country increasingly focuses on the 4 S’s – sustainability, self-reliance, social equality and data security. We see many rising stars in sectors such as technology, industrials and new consumption which present attractive opportunities for active investors. Recent policy change activity represents the direction of the political agenda and underscores the dynamic nature of the Chinese market as we look for tomorrow’s champions. Currently this search is focused on four key themes:

New energy which we believe forms a long-term secular trend as China works to meet its ambitious carbon neutrality goals

Electronics and industrial automation as demand for electronic products is supported by the increasing reliance of technology in areas such as remote working, 5G and cloud penetration. At the same time, we see tight supply and demand conditions in segments such as semiconductors, foundries and integrated circuit design 

Domestic consumption where we see continued growth in high end consumption whole domestic brands are gaining more traction among younger generations 

Pharmaceuticals where Chinese contract pharma manufacturing companies are gaining global market share by helping drug development and manufacturing processes with cost competitiveness and high quality output

At a macro level, we expect Chinese monetary policy to remain stable for the second half of this year and as inflation peaks, what has previously been a headwind to corporate margins will become a tailwind. For all these reasons, I remain positive on the equity market in terms of strength and resilience. However, we cannot ignore the risks posed by geopolitical tensions and regulatory complexities in the near term and investors need to weigh these are part of an investment decision.

Why China

Hear from Lucy Liu, Portfolio Manager on the Global Emerging Markets Equities Team as she highlights the exciting investment opportunities that China offers

Huge, but under-owned

2nd
Largest economy
in the world1
2nd
Largest equity & bond
markets globally²
3%
Owned by foreign
investors³

Sources: 1IMF, October 2021, 2World Federation of Exchanges, December 2021 and Bank of International Settlements, September 2021, 3People’s Bank of China, Wind, December 2020.

Why BlackRock for China?

We are one of best resourced Chinese equity teams, with 18 investors in Hong Kong focused on the market, and a further four based in Shanghai. We also have the support of our risk and investment stewardship teams, as well as our corporate access partners. Being able to meet with corporates is a core part of our investment process and we didn’t let Covid slow us down as we held more than 1,400 virtual company meetings.

China is very dynamic and fast changing market with plenty of regulatory uncertainties. As we are not constrained by a style or thematic bias, we are able to move quickly to shift our factor exposures and sector allocations when markets or views change.

Finally, we run a high concentration, high conviction portfolio supported by the in-depth and differentiated company research driving our stock allocations.

We believe that in a market like China, the best opportunities come through dedicated analysis, thorough research and the ability to forecast the many competing drivers of performance. Our investment process combines all of these, and more, to deliver strong returns to our investors.

Why BlackRock for China

To help discover the opportunities these changes provide while being aware of the geopolitical risk involved in investing in the market, you need a trusted partner who is not only an expert on China but can apply their knowledge, expertise and judgement in creating portfolios that can deliver the best of Chinese markets to you.

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