I tend to think that China is underrated, both in the short and long term.
There is a narrative out there that China is 'struggling' and that encouragement is far too far but the facts do not bear that out. Chinese GDP is still growing at a pace of nearly 5%, which is the envy of the world. In addition, its export share continues to grow by 6.7% y/y reported earlier this week. Yes, that is lower than the expected +8.5% increase but there is still strong growth and an increase in EVs could lead to a long runway for foreign sales.
Reimagining how well China is doing may explain why Beijing has been slow to unlock stimulus. There could also be sensitivity to global inflation and they might not want to contribute to that.
A large part of the devaluation in China has been in real estate and there is a clear policy to take air out of that sector to ensure affordability in the long term. That is social government policy and unlikely to change. The problem is that Chinese savers do not have many places to turn because real estate was once a safe source of money, and Chinese shares have become a graveyard. That is to put money into gold and obviously into Chinese bonds, despite the current poor yield.
What has changed now? China's economy continues to slow and international pressure is mounting to improve local consumption and global inflation is less of a problem. Will it happen?
I think the chart of the MCHI ETF shows the ebb and flow. The market was excited at the end of September, then again in November and earlier this week but all highs are lower than the previous one. That's an ominous sign that this year's policy announcement will be a pistol rather than a bazooka.
