China's Financial Market Strategy

China continues to make monetary policy decisions aimed at maintaining a balanced domestic recovery, leading to international expansion, by reigning in looser monetary policies adopted during the corona crisis and maintaining stability in loan rates (1). Major foreign-funded companies have been allowed equal access to financing programs and reduced income tax, aimed at supporting their post-covid recovery (2).

Encouraged by regulators to deleverage in an initiative to reduce debt, many Chinese companies, particularly in the property development sector, saw their equities slump in Western markets. However, the long-term goal of this initiative, to improve China's balance-sheet stability, is already being reflected by risk-gauges which demonstrate volatility in Chinese markets has converged with that of the US. Chinese markets have become all the rage with a record-number of IPOs, a volume of secondary offerings, and over 700 billion dollars of management shares upcoming in 2021. Analysist expect Chinese stocks to outperform their Western counterparts in the long term, and given the similar degree of risk, yet half-again as much earnings per dollar, Chinese stocks remain an attractive investment option (3).

The growing usage of fintech in Africa and across the eastern nations, with Chinese aps such as WePay, coupled with the arrival of the digital renminbi, shows continued growth and wider usage is to be expected in this sector —provided people can make peace with the Chinese government being able to track how and where one spends their money.

With Hong Kong being set up as the seat of China's capital markets, and given China's relatively low increase in debt per capita, China, and Asia in general, has avoided the massive increase in budget deficit seen in western economies, making investing in Asian fixed-income markets an investment opportunity worth noting. Caution is warranted, however, as the decoupling with the US may pose some risk for investors (4).

 

References

  1. China ‘unsurprisingly’ keeps benchmark loan rate unchanged for eighth straight month ahead of ‘hike’ in 2021

  2. China extends financial support to foreign firms

  3. Deleveraging pauses China stock rally but refreshes economy

  4. The Renminbi Will Gain Wider Use Globally, Gavekal's CEO Says


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