China: Five year capital market expectations and boots-on-the-ground insights

China’s economy is rebounding after the COVID-19 outbreak but what is the long-term outlook for China and where are the opportunities for investors?

25 Sep 2020

Key takeaways

  • China is in a strong starting position and will continue to see robust growth to 2025, albeit at a slower pace than in previous years.
  • We project annualized returns of 8.9% for Chinese equities and 10-year China government bonds (hedged) over the next five years.
  • For global investors with a 60/40 portfolio in equities and bonds, we estimate that adding a 5% allocation to Chinese assets will increase expected 5-year returns and the Sharpe ratio, while slightly decreasing volatility.
  • Young generations are becoming mainstream consumers and increasingly do their shopping online, which supports a strong outlook for the e-commerce sector.
  • COVID-19 has accelerated long-term behavioral changes in China, and online sectors have been key beneficiaries