D.he figures published in Beijing by the Chinese customs authorities on Thursday are impressive. They show that China’s economy has fully recovered from the Corona crisis. In December, exports increased by 18.1 percent compared to the previous year, while imports rose by 6.5 percent. China’s foreign trade looks just as robust over the year: In the Corona year, exports increased by 3.6 percent, imports only fell slightly by 1.1 percent.
The country is probably the only major economy that managed to post growth in the past year, while the rest of the world is experiencing a recession. The International Monetary Fund recently expected China’s gross domestic product to grow by 1.9 percent for 2020. According to the forecast, growth this year should even be 7.9 percent.
China’s economy is back to pre-crisis levels: a state that Europe and America can only dream of today. China is also showing the West how the country wants to make its own economy more independent – probably for the simple reason that the trade war should also continue under a Biden government.
Beginning of an Asian decade
Meanwhile, not just China, but the entire region of Asia should be exciting for investors in the next few years – especially when it comes to long-term equity investments. In the next ten years, among other things, the middle class in Asia is likely to grow by an estimated one billion people.
According to Tilmann Galler, capital market strategist at JP Morgan, this promises enormous growth in consumption and the regional domestic market. “Since many Asian economies are currently fundamentally convincing, the prerequisites for us to be at the beginning of an Asian decade are very promising,” said Galler.
In his estimation, Asian stocks still have the potential to outperform despite the good price development. “In our long-term earnings estimates, which are published annually, we expect an excess return of more than two percent per year over industrialized countries over ten to 15 years,” emphasizes Galler.
While the Chinese telecom groups China Telecom, China Mobile and China Unicom were recently banned from trading on Wall Street, investors in popular stocks such as Alibaba, Tencent and Baidu can breathe a sigh of relief after a possible trading ban in America for various China stocks stood in the room. According to a report in the Wall Street Journal, this seems to be off the table for now, even if the Pentagon’s blacklist, which includes companies that support the Chinese military, has not been shortened. To what extent the new government under President Biden will adopt this list remains to be seen.
Environmental protection and ethics in China
Aside from this topic, however, it could be difficult for investors to invest in China stocks if they consistently adhere to the usual standard ESG criteria. China, for example, was the world’s largest emitter of CO2 with 28 percent of global carbon dioxide emissions in 2018.
In addition, there are well-known critical issues such as labor and human rights conditions in the People’s Republic, which, in addition to the fact that well-known entrepreneurs who are inclined to the West, disappear from the scene from one day to the next. The most recent example is Alibaba founder Jack Ma. If an ESG-focused investor puts all of this together, he actually has no other option than to exclude Chinese stocks from the portfolio. That, in turn, does not mean foregoing good equity investments.
The investment experts at Janus Henderson, for example, are of the opinion that – if the recovery expectations in the markets are largely fulfilled this year – the “top of the stock market will look very different than in the first six months of the Corona era, as technology stocks and other growth sectors far outperformed any other equity segment ”.
Given relative valuations and investor sentiment now leaning heavily in favor of growth stocks, there is plenty of scope for further rotation towards the losers of 2020, explains Janus Henderson’s Paul O’Connor. At the regional level, according to the expert, this speaks for a move away from the United States and an orientation towards stocks in the euro zone, Great Britain and also Japan.