As China's leader seals his power within the ruling party, Colin Liang, head of China research and portfolio manager of the China Equity Fund, shares his view on the investment implications of China's Party Congress held last month.
While investors have become increasingly concerned about the consolidation of power by Xi at the party congress, Xi Jinping also put a heavy emphasis on economic growth, with an increasing focus on the quality of growth, stability, and common prosperity.
In his speech, Xi reiterated achieving a medium-level developed market by 2035, implying an average GDP growth rate between 3.7 to 4.5% p.a for the next 10 years which suggests a continuation of macroeconomic policy prudence, systemic stability, and sustainability.
We believe the current accommodating monetary policy is set to continue in the short term and the fiscal policy could be more active now that the personnel uncertainty is removed. Over the long-term, we believe China will press ahead with its self-sufficiency efforts, especially in core technologies, modernizing manufacturing industries to reduce income disparity.
Overall, the market perception was mixed from the 20th Party Congress. Ambiguity surrounding policymaking may continue, but, on the flip side, the efficiency of policy implementation may improve—since economic development is still one of the top priorities and the economic team mostly consists of solid technocrats with strong execution ability.
In our view, given the extreme positioning in overseas Chinese equities (Hong Kong and US ADR), we see high volatility can work both ways.
Redwheel's Emerging Market strategy has a 3% overweight position in China. Within that, the fund is 4.9% overweight China onshore A shares and 3% underweight China offshore (HK and US ADR). We view current positioning as similar to the earlier sell-off in March 2022, when onshore and offshore investors had a divergence in views and risk sentiment.
