Features

Expect China's economy to keep on growing

China’s main stockmarket index, the CSI 300, has had a roaring year so far, gaining 25% and outstripping its major rivals. And last week there was more good news for the bulls.

China's main equity market index, the CSI 300, slumped by more than a quarter in 2018. But this year it has come roaring back, gaining 25% and outstripping its major rivals. Ongoing trade talks with the US, which have been "very productive", according to Donald Trump, have been a key driver of the rally. And last week there was more good news for the bulls.

Leading equity-index provider MSCI has announced that it is going to integrate more of China's domestic stocks into its indices. The so called A-shares would then account for more than 16% of the MSCI Emerging Markets index (which already has a third of its assets in China). Tracker funds following this index would automatically buy the new shares once they're included in November. This could see $125bn flowing into the country's equities this year.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Boosting the economy

All these policies are designed to prevent the recent downturn worsening; last year the economy grew by 6.6%, the lowest growth rate since 1990. Beijing is constrained by a huge debt pile, so it can't stimulate nearly as powerfully as it did when the West collapsed into the financial crisis a decade ago. Expect a pick up in credit growth from an annual rate of 10% to 12%-13%, say Andrew Batson and Chen Long in a Gavekal Research note: nothing spectacular, but enough to put a floor under growth.

Meanwhile, investors "taking a long view" will want to take advantage of historically low valuations, says Fabiana Fedeli in the FT. The outlook remains compelling. "At its current size, 6% growth in China's economy adds the GDP equivalent of another Switzerland each year," Edmund Harriss, manager of the Guinness Best of China Fund, toldThe Sunday Times. "If we were to assume that China's GDP grew by 6% this year, 5% next year, 4% the year after... then in five years' time, in GDP terms, China will still have added another India."

Advertisement
Advertisement - Article continues below

China has more millionaires and billionaires than any country save theUS. It has a growing middle class, andit is gradually shifting from being a manufacturing-orientated economy to becoming a consumption-driven one.

Investors could consider two investment trusts that focus largely on the long-term growth of consumption: the JPMorgan Chinese Investment (LSE: JMC)and the Fidelity Special Situations (LSE: FCSS) trusts. They are on respective discounts to net asset value of 11% and 8%.

Advertisement

Recommended

Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/519913/share-tips-8-stocks-for-robust-returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Visit/519872/beware-the-hidden-risks-when-investing-in-emerging-markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Visit/519724/share-tips-of-the-week-166
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019

Most Popular

Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020
Visit/economy/600632/money-minute-friday-17-january-uk-weakness-likely-to-continue
Economy

Money Minute Friday 17 January: UK weakness likely to continue

Today's Money Minute previews UK retail sales figures the UK, inflation data from Europe and industrial production from the US.
17 Jan 2020
Visit/520598/money-minute-thursday-16-january-a-batch-of-company-results
Economy

Money Minute Thursday 16 January: a batch of company results

Today's Money Minute looks ahead to results from a host of UK companies, plus the latest unemployment figures from the US.
15 Jan 2020