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Investors piling into China stocks should consider fundamentals

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Investors will “pile into Chinese equities” in 2021 as the country’s impressive economic recovery picks up more momentum, but this should not overshadow the critical need for global diversification.

Nigel Green, the chief executive of deVere Group, said that China’s benchmark index the CSI 300, which tracks shares on the Shanghai and Shenzhen stock exchanges, jumped nearly 2% as investors around the world rush for exposure to the People’s Republic’s economic recovery from the Covid pandemic.

“These fresh impressive gains for Chinese equities come after an incredible year in 2020 in which the index added more than 27%,” he said.

“This trend of piling into Chinese stocks can be expected to continue throughout 2021 as investors seek growth,” added the CEO of the financial advisory and fintech organisation.

“China’s rebound is quite remarkable, compared to other major economies, many of which are once again rolling out stricter restrictions to stop the spread of Covid amid a tsunami of new cases.

“The country has just reported increased industrial output and retail sales towards the end of 2020, bolstering expectations of further robust growth in 2021, adding fuel to the nation’s stock markets and currency as well as those economies that get a boost from domestic spending within China.

“Of course, all of this will not go unnoticed by investors looking for yield,” Green said.

However, the deVere CEO also had a warning for investors.

 

‘Certainties’ can shift overnight

“China’s already impressive economic recovery is likely to pick up momentum and this will be extremely attractive.  But as 2020 showed us with perhaps too much clarity, things can change quickly and so-called ‘certainties’ can shift overnight.

“Therefore, as ever, it is essential that investors have a truly diversified portfolio. This includes across geographical regions, assets classes, sectors and currencies.

“A good fund manager that can secure global exposure and actively seek out opportunities in Asia, especially in China, will best position investors to reap rewards in 2021.”

Green concluded that China, and Asia in general, have massive potential and will likely outperform the rest of the world in 2021.

“However, investors must not get giddy and forget about the importance of diversification – the investor’s best tool to capitalise on opportunities and mitigate risks.”