Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

CHINA’S stock market has gone nowhere fast since the Lunar New Year in February, despite a continuing economic revival over the summer months. Meanwhile, India – China’s great growth rival – has seen its stock market forge ahead. That may have left investors wondering whether China’s stock market will make amends in the final few months of the year.

On the face of it, the chances of that happening may not look too great. Recent regulatory changes affecting the technology sector including the introduction of limits on video gaming for minors have weighed on sentiment. What’s more, China’s economic recovery has shown signs of rolling over, as the Delta variant of the coronavirus has begun to impact consumers both at home and abroad.

Retail sales growth and factory output both slowed in July as high commodity prices, chip shortages, measures to cut carbon emissions and tame the property market, severe floods in Henan province and a partial shutdown at China’s second biggest container port combined to depress activity.

However, new data out this week suggests activity may now be recovering. Exports rose by more than a quarter in August compared with the same month in 2020, accelerating from a 19.6% year-on-year gain in July. Imports also rose rapidly and were a third up on last year1.

Reflecting strong demand from China, Indonesia’s energy ministry set its September coal benchmark price at $150.03 per tonne yesterday, up from $130.99 in August2. Indonesia is the world’s largest exporter of thermal coal.

After trimming the amount banks have to keep in reserve against the loans they make in July, China’s central bank signalled last month that it is ready to ease credit conditions in some targeted areas of the economy if need be3. If the economy continues to deliver progress akin to what we have seen in August, it may not need to.

Either way, the latest data bodes well for Chinese stock markets which, after a lacklustre six months, trade on just 14 times the earnings companies are expected to make over the next year compared with 22 times for North America4. China’s government’s is targeting growth of over 6% in 2021.

Several Fidelity Select 50 funds offer investors an exposure to China, either directly through investments in Chinese companies or via the wider Asian region. A strong Chinese economy benefits Asian commodity producers as well as manufacturers in countries such as Thailand and Vietnam. It should also provide a boost for the traditional Chinese tourist markets of Singapore, Indonesia and Malaysia once borders reopen.

The £7.3 billion Stewart Investors Asia Pacific Leaders Sustainability Fund has a relatively low direct exposure to China of around 7.5%⁵. However, new holdings in Chinese companies have been introduced to the portfolio recently, including positions in China’s leading molecular testing franchise and a Chinese industrial automation business.

The Fidelity Asian Special Situations Fund run by experienced portfolio manager Teera Chanpongsang targets growth opportunities in Asian markets and favours stocks that are attractively priced in relation to improving earnings. Current top-10 holdings include Taiwan Semiconductor (TSMC) alongside Alibaba and Tencent – both of which have upsized their share buyback programmes lately.

Source:

1 South China Morning Post, 07.09.21
2 Reuters, 07.09.21
3 China Daily, 13.08.21
4 MSCI, 31.08.21
5 Stewart Investors, 31.07.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates.   Investments in emerging markets can be more volatile than other more developed markets Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. The Stewart Asia Pacific Leaders Sustainability Fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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