Within Chinese equities, CIO favors a barbell approach balancing recovery beneficiaries and sectors with high and resilient dividends. (ddp)

Recent Politburo announcements set the stage for concrete government action that can support Chinese equity earnings, sentiment, and performance in the second half. Growth differentials versus developed markets should support EM bonds and stocks.


China-linked investments lagged on growth and geopolitics in the first half of the year.

  • Chinese equities have underperformed the EM index by 9 percentage points year-to-date, based on MSCI indexes.
  • Weaker sequential economic data has led investors to question China's economic recovery and the outlook for local company earnings.
  • Anticipation of a US executive order to limit outbound investment in sensitive high-tech sectors in China has also dented sentiment.

Recent Politburo announcements should boost growth and sentiment... when executed.

  • The July Politburo meeting, scheduled earlier than investors expected, revealed a number of growth-positive developments.
  • Lawmakers' commitments to supporting consumption, managing local government debt risks, and supporting private enterprises look especially promising.
  • Concrete agency and local government action is now needed to lift sentiment and stock prices sustainably, in our view.

We see scope for Chinese stocks and EM assets to rally.

  • We expect around 14% earnings growth in Chinese companies this year. MSCI China's forward P/E ratio of 10.5x is below the 15-year average of 11.2x.
  • Within Chinese equities, we favor a barbell approach balancing recovery beneficiaries and sectors with high and resilient dividends (financials and utilities).
  • We're most preferred on EM bonds and equities due to better business and policy cycle dynamics versus the US.

Did you Know ?

  • China's 2023 economic rebound has relied heavily on a domestic consumption recovery as local life normalizes and pent-up demand is released.
  • China's top two new economy companies account for around 40% of the MSCI China index by market cap.
  • China's private sector accounts for around 60% of China's gross domestic product. Private companies provide four in every five urban job.

Investment view


China's economic recovery can resume, powered by a rise in consumption. Chinese stocks can benefit from stronger earnings and a follow through from Politburo discussion into growth-supportive action.


Main contributors - Eva Lee, Jon Gordon, Matthew Carter


Original report - Can China assets regain momentum?, 27 July 2023.