- China has delivered on its promise to open up its financial markets, and as a result foreign investment flows have been very strong in the past few years.
- Chinese equity and bond markets have declined significantly since the introduction of government regulations across a broad range of sectors. We are at a juncture as the economy decelerates and investors worry about policy risk.
- The current backdrop, taking into account structural changes to the economy, elevated levels of volatility and valuation spreads, we believe is a good environment for stock pickers and alternative asset classes.
- While we have seen sharp drawdowns in Chinese equities, in our view current valuations imply that most of the concerns are already discounted in the market. If government policies are adjusted in the coming months, we expect this to be positive for Chinese equity markets.
- Valuations in the Chinese high yield market are now at record lows however, this does not stem from a negative macro backdrop, which is a positive for high yield investors and, in our view, could present an attractive entry point into the asset class.
- Chinese onshore government bonds look attractive versus other government bonds, where central banks are looking to taper their bond purchase programs and/or raise rates.