Public Equities

Hong Kong-China Equities: All Eyes on Policy

February 2024 – 2 min read

Patience is required as the market is eyeing the government to support China’s economic growth in 2024—but a bottom-up approach remains key.

Since its post-COVID reopening in 2023, China’s economic recovery has been weak with government policy support below market expectations. Looking at the year ahead, we expect the focus of policies to shift from stabilization toward growth—and the official GDP growth target announced in March’s National Congress will likely set the tone for this year. At the same time, we expect the Chinese government to take a more coordinated approach across various government agencies, to ensure efficient utilization of capital and policies, as well as to turn around the deflationary environment.

We expect that monetary policies and domestic liquidity will continue to be supportive. However, capital has not been efficiently deployed throughout the economy—a key area for the government agencies to improve in the year ahead. We are monitoring the impact of recently launched policies, such as the relaxation of purchase qualifications for properties, as well as new initiatives aimed at stimulating consumption. For now, part of our portfolio is positioned toward defensives and yield-generating assets, both due to their lower volatility and attractive current valuations.

Market Opportunities

In the U.S., moderating inflation and a strong labor market have set the stage for a likely soft-landing scenario this year. This suggests that global central banks now have the flexibility to tailor their monetary policies based on their domestic conditions, which is typically supportive for global economic growth. Against this backdrop, we are constructive on the Chinese manufacturing companies that have a significant presence in the export market. At the same time, the potential for U.S. interest rate cuts this year could result in a marginally weaker U.S. dollar, which should be supportive for investments and revenues from non-U.S. markets.

For now, market sentiment remains somewhat skeptical on Chinese equities, with valuations appearing attractive compared to historical levels and against broader global markets. If investors can remain patient, we believe this backdrop provides an attractive entry point for longer term investors.

As the economy gradually normalizes, we are seeing attractively priced, strong long-term growth opportunities emerge. Structural trends such as sustainable growth, self-sufficiency in the supply chain, scientific and technological innovations, and environmental awareness, will likely continue to unfold. This should bolster the outlook for companies with exposure to sectors and themes such as new infrastructure, domestic consumption, health care, technology localization and sustainability in the medium to longer term.

24-3370681

William Fong, CFA

Head of Hong Kong China Equities

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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