The stock market performance reflects, over the long term, the economic growth of a company or an economy. In the shorter term, the markets may nevertheless diverge from economic reality. Thus, despite China’s growth of 18% in the first quarter of 2021, and a second quarter at 7.9%, Chinese equities hardly performed well on the stock market over the same period with, for example, an increase of only 4 , 6% in the first half for the MSCI China index.
The country, by its size and its power, takes with it all of Asia. It is also one of the heavyweights of emerging markets, weighing around 35% of the representative index of the sector, the MSCI Emerging Market. The latter gained 11% in the first half of 2021, against nearly 16% for international equities.
Several reasons justify this air gap. China’s central bank, against the grain of the rest of the world, tightened monetary policy, which reduced the liquidity available to finance economic expansion. Above all, Beijing has toughened its tone against players in the technological sector (Alibaba, Tencent, etc.) and then, this summer, against the private education sector.
Beijing has toughened its tone
“The Chinese government is putting regulatory pressure on the technology sector in order to limit monopolies”, explains Xavier Hovasse, manager and head of the emerging equities team within the management company Carmignac.
If this worried the markets and penalized the valuation of these companies, the managers also see it as positive. “It is favorable in the longer term because this law will help to grow the sector in a healthy way”, estimates Michel Audeban, CEO of the management company specializing in emerging markets Gemway Assets. He believes that Beijing’s takeover of the private sector is coming to an end.
Finally, investors are cornered by the rebound taking place in the United States and Europe. “The economic momentum shows a greater interest in Western economies”, notes Frédéric Rollin, investment strategy advisor at Pictet Asset Management.
Attractive prices
But this phase should only last a while. “The Chinese market should evolve in corrugated iron until the fall, anticipates Mr. Audeban. After the economic rebound, normalization will take shape in Europe and emerging countries will then regain their appeal. “
Because the area, especially China, retains many assets for investors over the long term. “China is the best managed global economy, says Mr Hovasse. Its orthodox monetary policy gives it the means to revive its economy if necessary, and it invests in promising sectors such as renewable energies, artificial intelligence, education and health. “
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