Invest in China? It’s a little Messi
As Chinese people all around the world mark the New Year of the Dragon, the netizens at home are fired-up with indignation. The Argentinian footballer Messi is the source and the target of the anger for allegedly dodging an exhibition match in Hong Kong with a hamstring injury, only to take to the pitch in Japan a few days later, apparently recovered. The paying punters have cried foul. Refunds are being demanded and the contract with Inter Miami is being closely scrutinised.
I’m no physician, and so don’t know how long a hamstring injury takes to mend - but when video emerged of Messi apparently avoiding a handshake with HK Chief Executive, John Lee, many assumed a deliberate snub to the current government. A case, then, of politics 1 soccer 0.
What has this got to do with investing in China you may ask?
A little like knowing whether an international football star will perform on the day: flashes of brilliance can be replaced by a frustrating lack of form. In other words, returns can be unpredictable and lumpy!
China outlook
When China responded to the 2008 Global Financial Crisis with huge stimulus the CSI 300 rose 132% in 9 months. Subsequent returns were even stronger. Then in 2015, stocks in China rose 148% in 12 months, once again drawing in foreign capital that chased bubbly returns. Both of these episodes involved speculative fervour and constant government intervention.
No one could accuse today’s market of being frothy. Foreign investors fled in 2023 as the post-covid rebound went from a firecracker to a fizzle. The Chinese market has halved from its February 2021 peak and the consensus is very pessimistic on the official 5% growth target. And government intervention? Well, nothing had moved the needle when this was written.
And in the absence of a change in the trends - the prevailing view is the poor demographics; a challenged property market; high youth unemployment; a fractious US election hustings; and weak consumer spending will continue to hold the market back.
Game over then?
The contrarians are getting more excited the gloomier the story becomes. Chinese innovation in AI, EV and Energy Tech continues regardless of a stricter official focus on technology companies. The pandemic savings are presumably still there, even if consumers are cautious about spending - and it is still one of the biggest domestic markets in the world. Finally, the governing system may not win many fans in the west, but it has shown itself reactive to sustained public pressure. Most contrarians are banking on stimulus in the short term and more investment in growth sectors in the long term.
The result?
The US’s Inter Miami beat Hong Kong 4-1. Currently the S&P 500 is near all time highs. The disparity between US and Chinese stocks is the widest ever. Let’s see whether having the New Year Dragon on the team can level up the score - because, just as in sport, for markets past performance is no guarantee of future returns.
Happy Lunar New Year to you all!
