Is China Still Investible? Should You Consider Investing In China?
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Is China investible?
If you are investing for the short term: no
Med term: Maybe
Long term: yes.
Why is China not investible in the short run?
If you are thinking of investing for a few months up or a few years, I don’t think you should consider investing in China as the market itself is
1. Highly volatile and unpredictable as we’ve seen from the slew of regulatory crackdowns and covid lockdown
2. Not perceived favourably in the global investing community which causes the market to often over-react to negative news while being non-responsive to positive news
3. Currently undergoing a series of changes as the government resets their priorities on social equality which is beneficial in the long run but painful to businesses in the short run
As a result, the Chinese market is the worst nightmare for any short-term investor as they are subjected to higher investment risk while not being rewarded for any positive short-term developments.
To make matters worse, given that China is undergoing a series of changes and the government’s track record of often being too extreme with their implementation, the level of uncertainties that short-term investors have to deal with is not worth it as there are better options available.
Why China maybe investible in the Med run?
China may be investible in the med run as having a 5 to 10-year runway would probably be sufficient to at least iron out the short-term volatility and reduce the downside risk.
That said, while the downside risk can be mitigated, the certainty of returns may or may not materialize as it largely depends on
1. Where the market is fundamentally after the Covid lockdowns, supply chain disruptions and global political tensions had recovered and normalized.
2. How do the global investors perceive China’s investments to be, given where they are at the point in time?
Here’s the thing, for investors to be rewarded for the risk that he or she assumes when investing in China, two conditions must be met.
Either the investor perception of China’s investment or the fundamentals and future growth trajectory must be neutral or positive.
Should either one of the conditions be negative or deteriorating, the potential upside return would be severely jeopardised even though the downside risk could be mitigated with a longer investment duration.
Why is China investible in the long run?
Regardless of what happens in the short run, in the long run, it is inevitable that China’s economy will continue to grow albeit slower than in the previous 10-20 years.
Healthy returns can be achieved so long as the investor
Do not overpay for his or her investment
Achieve proper diversification instead of focusing on specific sectors
Invest for the long term
As I’ve mentioned earlier, the changes that the Chinese government is proposing and implementing is one that is beneficial systematically and socially in the long run but is painful to businesses in the short run.
If indeed, the Chinese government manage to achieve what they have set out to achieve, the rewards can and will only be able to be reaped in the long term which is why I think that if you are a long-term investor, China is still investible.
Personally, I do not have a direct investment position in China as my investment hypothesis revolves around Asia regional growth – which is one that is broadly diversified and has a higher probability of materializing - as compared to individual country or sectoral bets.
Now, if you do not know how to get started with your investments or if you do not have the time to manage your investments, you can check out what I do on my website to see how you can benefit from my investment planning services and reach out to me directly.
Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:
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This article is meant to be the opinion of the author
This article is for information purposes only
This article should not be seen as financial advice
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