Page 50 - DIY Investor Magazine | Issue 36

Dec 2022 50
DIY Investor Magazine ·
‘IT IS THE TIME FOR CHINESE STOCKS TO SHINE’: OUTLOOK 2023
We have seen one positive surprise after another from Beijing; the easing of COVID restrictions has been faster than expected, there has been a rescue package for the property market and a positive move in terms of the relationship between China and the United States – by Dato’ Seri CHEAH Cheng Hye
China has started a new cycle of growth and recovery; at the party congress, it was confirmed that economic growth is now China’s number one priority as the main solution for many of the challenges it faces.
In panic buying from late October, many Chinese stocks went up by 20% or more; my analysis is that there is potential for the Chinese stock market to increase by another 20% to 40% in this new cycle. However, I must caution that markets almost never go up or down in a straight line. There may still be some turbulence, but the direction looks very positive indeed.
The key factors that determine market direction are traditionally the direction of the economy - whether corporate earnings and dividends go up and down - the direction of interest rates which determine the price of money, and investment sentiment.
A new factor will be geopolitics, which can now have a direct and immediate impact on market direction. For China, all the above factors moved negatively between March 2021 and 2021, but have now turned around; for the coming year, China is showing solid growth.
Most forecasts for Chinese growth in 2023, including that from the IMF, is for growth of between 4.5% to 5.1%.
In comparison, much of the developed world has entered a slowdown and potential recession.
‘THERE IS POTENTIAL FOR THE CHINESE STOCK MARKET TO INCREASE BY ANOTHER 20% TO 40% IN THIS NEW CYCLE’
China is able to turn around partly because inflationary pressures are low, so there is room for stimulus, even perhaps for moderate easing of interest rates, and the government’s property rescue package assures a soft landing for the troubled sector.
Geopolitical tensions have reduced since the recent meeting between President Biden and President Xi in Bali, when the
US said it is not seeking confrontation with China. However, Chinese stocks remain at rock bottom valuations last seen during the Global Financial Crisis of 2008, which is why people such as me who have followed China since the 1980s are pretty optimistic.
To put China into context for the global investor, we knew
a world where the US dominated and provided a sense of security and safety; as investors, we focused on business and commerce, and let political leaders and military generals take care of the geopolitics.
But now, global order has broken down. We have been swept by social unrest, financialization, inflation and war; even climate change. We’re seeing the weaponization of trade, money, food, and even human talent. The prevailing investment approach
of the last 25 years, FOMO (Fear of Missing Out) doesn’t really work anymore.
FOMO almost guarantees investors will be ‘whipsawed’, because markets become so volatile and unpredictable, and central banks ‘put’ - meaning expectation of them coming
to the rescue of markets at each and every crisis - frankly, central banks have run out of room to implement such rescue packages, with the exception of a few countries such as China. We have enjoyed too long a period of easy, almost free money, negative interest rates.
The amount of money printed since 1996 is several times the size of the real economy; a very fragile situation of over- financialization and rising inflation.