Re-globalization series: Opportunities in the Year of the Dragon

The coming Chinese Lunar New Year is the Year of the Dragon. In Chinese culture, dragon symbolizes power, fortune, progression and prosperity.¹

Indeed, we are seeing signs that the local economy and equity market may get a boost as we kick-start the Year of Dragon. 

A busy Lunar New Year

Chinese citizens are gearing up for domestic travel during the Lunar New Year, signaling increased economic activities.

A record 9 billion domestic trips are expected to be made over the next six or so weeks. That would be nearly double the 4.7 billion trips made last year during the Lunar New Year period. ²

Meanwhile, overseas travel is expected to rise. China’s aviation authorities have arranged more than 2,500 additional international flights to Asian destinations including Southeast Asia, Japan and South Korea.³

Foreseeable Policy Actions and Investment Opportunities in the Year of the Dragon

Recent China policy actions have been supportive to the economy, laying a solid foundation for Chinese equities in the Year of the Dragon.

For instance, The People's Bank of China (PBOC) cut the reserve requirement ratio (RRR) for banks by a bigger-than-expected 50 basis points from Feb 5.

Major Chinese cities, including Shanghai, Guangzhou and Suzhou, have recently eased home-buying restrictions.

We see a supportive policy backdrop in China that seeks to boost growth.

This could present investment opportunities for Chinese equities in the Year of the Dragon, given the attractive valuation – Chinese equities are trading at 53% discount compared to US equities.⁴

Chinese stocks may present a compelling opportunity for patient investors, as the risk/reward ratio is skewed favorably towards the upside.

We expect that Re-globalization and Greenization to be the key investment themes in China with long term potential. 

Re-globalization

As the Year of the Dragon symbolizes great energy, we believe that within the Re-globalization theme, Chinese companies joining the world supply chain will continue to penetrate to overseas market.

We favour Chinese companies that seize new opportunities to establish a global presence across sectors while maintaining a strong presence in the domestic market.

Greenization

On Greenization, the Year of the Dragon symbolize vitality and creativity, which are important elements for Chinese companies that focuses on energy efficiency and electric vehicles (EV).

With a commitment to achieving net-zero emissions, China has set ambitious goals to reach peak carbon dioxide emissions before 2030 and attain carbon neutrality by 2060.⁵

With government policy support and technological know-how, corporations that focus on Greenization such as energy efficiency and EV supply chain may present attractive investment opportunities. 

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

When investing in less developed countries, you should be prepared to accept significantly large fluctuations in value.

Investment in certain securities listed in China can involve significant regulatory constraints that may affect liquidity and/or investment performance.