Investors need to look at the risks and opportunities when investing in China.
Starting with the risks, there is no doubt that US/China frictions are going to be with us for the foreseeable future. This situation will produce both losers and winners. Winners could be local companies in China who grow market share at the expense of foreign companies, for example.
Additionally, China’s regulatory environment is getting stricter. Regulatory pressure is something we can learn to adjust to, and it may be possible to identify winners from new rules and regulations.
Finally, many popular industries in China, like EVs, biotechnology, and copper, currently seem exceedingly overvalued, which presents an obvious risk. That’s one reason not to be indexed, because you are going to be investing in overvalued companies at their peak.
We believe that the risks, however, are outweighed by the opportunities.
China's stock market is already the second largest in the world and is fast catching up with the US. Just as a global investor would not want to be out of the US, we believe the same holds true for the China stock market.
If we look at the number of IPOs in both China and Hong Kong, China has overwhelmingly the most in the world, and that means a strong pipeline of investible opportunities.
China continues to offer a big opportunity for active management. It is still an emerging market with inefficiencies such as we are seeing right now. But as an emerging country China also has tremendous trends.
I look at China and it reminds me of South Korea and Taiwan in the 1970s and Japan in the 1960s.
Like those countries, China is industrializing. If we go back to the 1950s the biggest car and electronics companies were American but they have been overtaken by Japanese players in the 1980s subsequently by Taiwanese and Korean players in the 1990s and 2000s.
We are beginning to see these early global leaders in China. Who would want to miss out on what is an exciting stage of China's development?
China spends more on R&D than any other country in the world and it files the most patents in the world. China’s growing strength in innovation looks likely to soon rival the US and we believe this will offer many attractive investment opportunities.
Source : https://www.ubs.com/at/de/asset-management/distribution-partners/insights/china/2021/China-equities-update-market.html414