China is so volatile, do we still invest in China?
At first it was the fintech attack. Last November China’s Communist big wigs stopped the $37bn initial public offering (IPO) of Ant Group, a financial-technology titan, and forced it to modify its lucrative loans and wealth management asset-light business into something more onerous and ‘societally responsible’ like a bank with statutory requirement of deposits and be more accountable to watchdogs. Since then other behemoths, the renown Alibaba and Tencent, have been targeted. Recently, regulators banned Didi Global’s ride-hailing app over data ‘issues’, less than a week after its $4bn IPO in the Big Apple. On July 24th, online-education companies were told they can no longer make a profit which for many investors signalled the end of China’s capitalist model state.
China was and still is a Communist country which had begun its love affair with a capitalist model bringing great wealth to the country as well as enriching many individuals after many years closed off to the world. However, what has inadvertently happened is the rising gap between the rich and the poor with wealthier workers in Shanghai, Beijing earning at USD25k per annum vs 40% of the population earning only RMB964 per month. This rising inequality has made the country sit up to pay attention to a possible Tiananmen Square Massacre if this continues unabated. The people have had a long running resentment of the rich, a simmering hatred called the Wealthy- Hating Complex.
It is clear that the Chinese government while seeming to be controlling and despotic by the western standards, wants to revise its state-capitalist model into something with less global capitalism and more Chinese state values. The Chinese are not anti-tech. They just want greater control and clarity into the foreign capital coming in and breaking up monopolistic strength.
China is still very big on decarbonization (a bold target to be carbon neutral by 2060), alternative energy, automation and AI and fairness of distribution of wealth. This bodes well for the future because this is the future. My own views with regards to China is this. If China was your only investment, that is not a prudent stance in your portfolio. If you have a portfolio, please do include the rest of the world by buying into Global (our recently launched “chocolate fund” as well as Millennial or Tech), Asia (we have many Asian funds and Asean too). If you want to go into China and you do not have much money, I definitely recommend doing a regular savings plan as that will even out the volatility of the individual country over time. If you “die-hard fans of China” still want to invest China only, please be ready to put in more capital when it goes down temporarily to average out your cost.
Also, with the Delta variant hitting so many people, we expect a more muted growth to the markets compared to the last 16 months of incredible growth. However, we do believe that with the 4th quarter, the developed markets will start to open up together with the emerging markets.
China will overtake the US to become the world's largest economy by 2028, five years earlier than previously forecast. The UK-based Centre for Economics and Business Research (CEBR) said China's "skillful" management of Covid-19 would boost its relative growth compared to the US and Europe in coming years.
After many years, investing is still the most optimum choice compared to leaving monies in Fixed Deposits which takes more than 36 years to double or in bonds. Make that length of time a little shorter and you can breathe easier.
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