China Big Picture: How to allocate capital amid the uncertainty

To start with the obvious, China is experiencing a roller coaster ride on many levels. There is plenty to worry about, including the current economic slowdown largely induced by China’s dynamic zero-COVID policy, stress and distress in the property market, wealth inequality, high corporate debt levels, a long-term challenge in demographic structure, geopolitical uncertainties, etc. The old adage “when it rains it pours” describes China’s current state of affairs well. In this kind of environment, the tendency to fall victim to our innate “negativity bias” does not help in maintaining an objective point of view. Accordingly, sentiment towards China is depressed and equity markets are in a deep bear market. To be precise, the MSCI China Index lost ~50% since its peak in mid-February last year.

So is the sky truly falling upon China? Or is this just another temporary episode where the market is moving from manic to depressive — creating interesting opportunities in the process? In order to answer this question, let us step back and look at some relevant big picture considerations.

To read the full insight in PDF by CIO Roger Prinz?and Investment Analyst Benjamin Tsui click here.