The good news is already priced in to China's stockmarkets
China’s CSI 300 stockmarket index gained 27% last year and is already up 4% in 2021, with investors being seduced by the country’s growth outlook.
China has surpassed the US as the world’s leading recipient of new foreign direct investment (FDI), say Paul Hannon and Eun-Young Jeong in The Wall Street Journal. The US had held the FDI top spot “for decades” but last year saw inflows plunge by 49% amid the pandemic, while China’s advanced 4%.
FDI is a measure of direct business investment rather than financial market flows. For all the talk of decoupling and shifting supply chains, big multinationals are still ploughing money into the country, with Starbucks spending $150m on a coffee-roasting plant and AstraZeneca setting up a network of regional offices.
China’s latest financial liberalisation effort, meanwhile, is in commodity futures. China is the world’s biggest consumer of iron ore and copper but most prices are still set on exchanges in London and Chicago. Regulators recently launched a yuan-based copper futures contract that has attracted strong interest from overseas traders. It is easy to see why Western investors are keen, says Michael Mackenzie in the Financial Times. The local ten-year government bond yields 3.1%, far more than its developed-world counterparts. The local CSI 300 stock index gained 27% last year and is already up 4% in 2021. Investors are also being seduced by the growth outlook. China was the only major economy to grow last year, adds Freddie Hayward in the New Statesman.
“There are lots of reasons why investors should have exposure to China”, says George Magnus, of Oxford University’s China Centre. But “a lot of good news is already” priced in. Nor is the geopolitical backdrop encouraging, despite the departure of Donald Trump. China is still set to face a “hostile global environment”.