Is China an undervalued market?

Most funds remain wary of China amid slowing growth. Have they got it wrong?

China flag and stock market indicators - concept of Chinese economic trends
(Image credit: Getty Images)

“China’s real-estate collapse may be morphing into something much larger: a deflationary economic bust,” writes investment strategist Ed Yardeni. “Buying a home was one of the primary ways that Chinese citizens used to invest and build wealth but new home prices have fallen by 5% year on year, marking the 13th month of consecutive declines. So the housing bust has taken a toll on Chinese consumers’ confidence, now at near-record low.”

According to the People’s Bank of China, 96% of residents own a home and 20% own more than one, yet the population is ageing rapidly, reducing demand and hence construction activity. Average house prices soared from £321 per square metre in 2005 to £737 in 2020, leading to a housing price-to-income ratio of 29. As a result, household consumption accounts for just 37% of GDP, compared with 68% in the US, according to economist Diana Choyleva. “More spending is crucial to revive China’s flagging performance.”

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Max King
Investment Writer

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.

After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.