China market has taken a pause after a strong rally in the past few months. The renewed hawkish tone from the US Fed may be the main reason behind the consolidation. Some critics are suggesting that the China reopening trade is done, or has become overcrowded already with not much immediate upside as a tactical trade. In this article, our Partner & Co-CIO David Lai addresses this topic from various aspects ranging from macro economies, investors’ positioning, to policy agenda and market valuation. He would also share why we believe it’s onshore A-shares that are picking up the baton for the second act of the rally - as the China reopening play evolves from short term tactical, to fundamental strategic opportunities driven by positive earnings growth and restoration of business and consumer confidence.

Chinese stocks took a rollercoaster ride in Q4, as the immediate lacklustre reaction to October’s National Congress gave way to a rally on the back of policy support in November. Investors finally cheered Beijing’s abrupt dismantling of its restrictive zero-COVID policies, as the year came to a close. By the end of December, the CSI 300 Index was up 2% on the quarter. Below in this article, Dr. Philip Wool, Managing Director and Head of Investment Solutions of Rayliant Global Advisors, would explore critical developments in the macro picture at the turn of the year, discuss fourth-quarter performance and factor rotation pattern through the period, and also provide our thoughts as to what reopening has in store for Chinese stocks in 2023.

In 2022, our Premia CSI Caixin China Bedrock Economy ETF (“the Bedrock ETF”) outperformed most of the market benchmarks, such as FTSE A50, CSI 300, CSI 500 and ChiNext, by around 10-24% points. In a backdrop of weak equity performance, investors favored low beta and volatility stocks with significant economic value and good financial health, which coincided with the Bedrock ETF’s underlying index methodology and broadly explained why the ETF outperformed in 2022. In this article, we would have a more in-depth look at the portfolio holdings’ companies and decipher drivers of the outperformance and whether this multi-factor approach of low volatility, value, quality and size tilts would continue to power outperformance in 2023.

If we agree China may offer outperformance in 2023, then the next step is to figure out the right positioning to capture the alphas. Investors are now at a crossroad to decide whether China tech is still investible. On one hand, the Internet platforms, used to be the market leaders, may no longer be the high-growth candidates in future as shown by the recent sluggish financial results. On the other hand, technological advancement remains one of the government’s key agendas that should help support the sector. In this article, we would like to share how to identify the “right” tech exposure to capture the opportunities in China market.

It was challenging for global investors to find a market that could offer a positive return in 2022. China market can’t escape from the selloff, with H-shares, A-shares and ADRs down by 20% to 29% in dollar return in the first eleven months of the year. The market turnover was shrinking whilst foreign investors were net selling. Internally, the frequent COVID-lockdowns, a property market slump, an ongoing Internet scrutiny, and the deteriorating bilateral relationship between China and the US all contributed to the bearish sentiment in Chinese equities. Externally, the Ukraine-Russia war, high inflationary pressure, an accelerated rate hike cycle, and strengthening dollar have further weakened investors’ confidence towards risky assets.

After finishing Q2 as the only emerging market in positive territory, the effects of zero-COVID policy, a continued slump in the property market, and weakening global demand pushed Chinese stocks to the bottom of the EM index in Q3. The CSI 300 Index dropped by -14.3% over the three months from July to September 2022. Below, we offer deeper insights into third-quarter performance—including some bright spots among state-owned enterprises and technology with a policy tailwind—along with our thinking on October’s National Congress and what the rest of the year might have in store.

Notwithstanding the cautious sentiment towards Chinese equities over the past year, the fundamentals suggest that it would be increasingly difficult to ignore Chinese equities as its economic heft and importance continues to grow. In this article, our Senior Advisor Say Boon Lim analyzes the fundamentals of the Chinese economy and why it makes sense for global allocators to deploy Chinese equities for diversification and growth opportunities as the alternative would be a deliberate underweight decision for a large part of the world's GDP and the key driver for global productivity growth.

As stocks around the world struggled in Q2 2022, China A shares produced a positive return, with the CSI 300 Index adding +6.2% for the quarter. This muted number nevertheless belies an action-packed three months, as investor sentiment toward mainland shares reached a low in April, with Shanghai and other major cities entering growth-stunting lockdowns amidst a rapid spread of COVID variants, only to recover sharply in May and June, as easing public health restrictions allowed Beijing to start ramping up a massive stimulus program intended to set the nation’s economy up for a strong second half leading into Q4’s National Congress. Here we offer some perspective on factor drivers in China’s market during the second quarter and comment on what might come next for Chinese stocks.

The great divergence between economic growth in China versus the rest of the Emerging Markets post-COVID-19 has increased the likelihood of a parting of ways between China and EM in asset allocations.

US sanctions on trade, technology, and financial market access have done little to dampen foreign investor enthusiasm for China. There has been a surge in foreign investment flows, both portfolio and direct, into China over the course of 2020: All of which begs the questions “why” and “how sustainable is this”?

The only major economy to grow in 2020. China has turned adversity from the COVID-19 pandemic into the best growth performance in the world for 2020.

The red-hot performers of the past 12 months have been the broad market indices from North Asia – Kospi (44%), CSI 300 (34%), TWSE (30%)

As business activities in China mostly resume to a normal level, we also observed some mean-reversion in factor returns, and interesting rotation in sector returns. Still, China A shares continue to outperform the US and global equity markets. With “high-quality” growth emphasized by the 14th Five-Year Plan and “Dual Circulation”, we believe “Quality Growth” will continue to be the main tone of China A equities.

The latest economic data confirms the upward trajectory of Chinese growth, putting China on track to be the only major economy to register growth for the full year 2020. And it highlights the attractiveness of China’s asset markets and supports the case for continued outperformance against other major markets.

China economy recovered faster than the rest of the world from the pandemic as shown by various economic indicators ranging from official PMI, GDP number, steel output, excavator sales, to traffic data. China’s solid macro recovery stands out from the rest of the major economies which either remain in a lock-down mode or simply begin to resume economic activities. That explains Chinese listed companies outperformed in terms of earnings and stock price performance.

Relief rally unlikely to last Beyond COVID-19, economies could flatline or enter recession Corporate earnings could stop growing at a time of heightened valuations There is a tail risk of credit defaults on liquidity and cashflow squeeze