China’s Investment Outlook In The Year Of The Tiger

The year of the Tiger started out on a strong footing for Chinese stocks with investors responding positively to recent Chinese policy moves. The Shanghai Composite Index gained over two percentage points just before China welcomed the Lunar New Year.

According to Chinese zodiac predictions, the Year of the Water Tiger will bring long periods of quiet markets, punctuated by short bursts of excitement and energy.

That said, some would prefer a more analytical approach to preparing for their investments for the rest of the year. With that in mind, our experts at Principal Asset Management Berhad (“Principal”) have shared some of their expectations for the Chinese market in 2022.

Downward pressure to ease

The downward pressure on Chinese investments looks set to change. There is potential for improvements after the Central Economic Work Conference in December 2021 elected to place an emphasis on maintaining stability in 2022.

Beijing believes that front loaded policies are the best strategy for economic recovery, and is positioning itself to ease controls over government financing. It has also promised to accelerate fiscal spending, allow the construction of new infrastructure, and implement new tax and fee-reduction policies.

Principal believes that the peak “intensity” of regulations has passed, and there should be gradual recovery going forward.

Monetary policies to spur the economy

The People’s Bank of China (PBOC) cut interest rates in late January 2022, with analysts anticipating another cut in the second quarter of the year. This was followed by a cut in reserve requirement ratio and the loan prime rate – moves that are in line with Beijing’s pledge to stimulate the economy with front loaded policies.

Deputy Governor Liu Guoqiang said that the People’s Bank of China will “open the monetary policy toolbox wider, maintain stable overall money supply and avoid a collapse in credit”. However, it should also be noted that an official statement from the Central Economic Work Conference included the phrase “houses are for living in, not for speculation”. While easing access to credit is a welcome boost to local industries, the outlook for the property sector remains mixed as recent measures taken by the government to prop up the property sector have yet to produce the desired results.

For the most part, Principal’s analysts expect that these policies will benefit the fixed asset investment in the near term, such as infrastructure, transportation, and telecommunications.

Focus on green policies

In 2020, Chinese president Xi Jinping announced that China has committed to being a carbon neutral country by 2060, with emissions peaking in 2030. It appears that the country will be continuing down this path with a policy shift from controlling energy consumption to promoting clean energy.

How China intends to achieve this goal is currently unclear, with details on curbing CO2 emissions going unannounced. However, the Economic Work Conference last year reiterated the stance to combat climate change.

What this means is that there are structural changes coming to the Chinese economy. Coal is likely to be phased out in favour of more renewable sources of energy. Principal has noted that China’s green bond market is recovering from the COVID-19 pandemic and expects it to continue to grow in 2022.

Going forward, Principal likes sectors that are supported by earnings growth and low policy risk, such as consumer durables and greentech. The focus on lifting incomes and growing the middle class is positive for long-term consumption, while green initiatives are a focus for China over the next few decades.

Get exposure to China markets with Principal

Markets are currently pricing in a lot of negatives due to investor confidence after the sell down in 2021. Improvements may be on the horizon with the normalising of global economies and manufacturing activities.

Overall, policy easing will likely see China’s economy grow within a reasonable range this year.

With that in mind, Principal has a range of funds available for those who are looking to gain exposure to the Chinese market. Below is a short list of available funds from Principal.

Fund name	General information
Principal China Direct Opportunities Fund - Class MYR	The Fund seeks opportunities through investments primarily in China A-Shares with the aim to provide capital appreciation. The Fund is established with a multi-class structure and is allowed to establish new Class(es) from time to time.
Principal Greater China Equity Fund	The Fund aims to achieve medium to long-term capital growth primarily through investment in a portfolio of equity securities with exposure to the Greater China region consisting of the People’s Republic of China, Hong Kong Special Administrative Region (SAR) and Taiwan.
Principal China Multi Asset Income Fund - Class MYR	The Fund aims to provide income and moderate capital growth through investments in one collective investment scheme, which invests primarily in a diversified portfolio of securities related to China. The recommended investment timeframe for this Fund is five years or more.
Principal China-India-Indonesia Opportunities Fund	The Fund is an equity fund issued by Principal Malaysia. The Fund aims to achieve medium to long-term capital appreciation by capitalizing on investment ideas in undervalued listed companies which are domiciled or have significant operations in China, India, and Indonesia.

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