The Ultimate Question
Where I live in Australia, everybody has a view on China and most of it is negative, and it's getting worse. I used to brush it off as the impact of attention-seeking politicians and media, but now it's seeping into the conscience of people who should really know better, including respected investment professionals and sensible business leaders. I have heard of recent decisions being made in relation to China exposure which can only be described as an ‘emotional knee jerk reaction’ at best, and ‘lazy and professionally incompetent’ at worst, suggesting that the negative commentary and ideological differences are starting to affect even some of the more hard headed pragmatists who can usually be relied on to look beyond the daily headlines.
Worst still, in terms of investment markets, there seems to be a view that China’s amazing economic growth story of the past 30 years has come to an end for any number of reasons, including regulatory risk, real estate risk, Ukraine risk, Fed risk, currency risk, geo-political risk, global supply chain risk, sovereign risk and the economic risks arising from attempting to maintain a ‘Covid zero’ policy. At just a 9.9x forward PE, the MSCI China Index is currently trading at the lowest valuation level for Chinese equities in history, including the 2008 Global Financial Crisis!
As my friend, Qi Wang writes in his latest Daily Reflection of China, “Investing in China now comes down to one Ultimate Question: Will China as we know it continue to exist?”. His response to this ultimate question is both chilling and sobering, and should be on the mind of any serious investment professional or business leader, particularly in this part of the world with our heavy economic reliance on the export of iron ore and coal:
“If the answer is yes, you can buy some of the industry leaders including Big Tech without doubt. If the answer is no, then China should be the least of your worries, since a China collapse would send tidal waves to the rest of the world. No economy or stock market would be immune”.
The information above is for general information only. It should not be taken as constituting professional advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique personal circumstances.