Several colleagues and I made our first journey back to China in more than 15 months as we start to get back to on-the-ground research. Our trip in May took us to 16 cities and included close to 90 meetings and visits to 20 manufacturing plants. In our travels, we spoke with a large cross section of people, from corporate executives and private entrepreneurs to rural villagers and young urban dwellers.

We made the trip just before regulatory uncertainties rapidly escalated and drove a sharp selloff in China’s equity markets in July. It seemed that management teams appreciated that we visited in person, especially after they learned we had quarantined. As a global portfolio manager, I believe these conversations have given me a long-term perspective that has been helpful during this volatility.

Risks to investing in China have obviously risen over the course of this year. That said, there are longer term forces at work that could have global implications over this decade. I’ll address both here. Having invested in Chinese stocks for more than 20 years, let me start with some impressions from my trip. I’ll then share a few recent high-level observations on what’s happened since.

Entrepreneurship is still alive and well

Even though some foreign investors have become spooked by the government’s intervention in the private sector, entrepreneurial activity remains vibrant from what I could discern. There is still lots of interest from venture capitalists and private equity investors in China, and we met with several entrepreneurs and company founders in their late 20s and early 30s. There is also a sense of pride as it relates to comparing China’s achievement versus the rest of the world in the development of public infrastructure, digital payments and internet platforms.

I detected a sense of meritocracy that is appreciated by the younger people: Hard work plus creativity can produce results, which could equate to a lot of wealth. I also came away thinking that women feel very much empowered in China.

China is not a monolithic economy

As an investor, I find it useful not to make broad generalisations about the world’s second-largest economy. China consists of many regional economies that are rapidly transforming.

Shanghai is cosmopolitan and booming, with an incredible amount of wealth creation. In the Yangtze River Delta region around Shanghai, large health care clusters are being developed in the cities of Suzhou and Wuxi. Further inland, the cities of Hefei and Hangzhou are hubs for component manufacturing and the electric vehicle (EV) auto industry.

Along the southeast coast in Guangdong province, Shenzhen (home to Tencent) remains the Silicon Valley of China but also is now a health care hub and the world’s largest vaping manufacturing centre. Dongguan has become the yester-year manufacturing powerhouse for developing communications and computer-related equipment. It is a reminder of how competitive the manufacturing sector is in China: reform or die! The rest of Guangdong province remains the bedrock of small merchant enterprises, traders and niche service providers empowered by the internet and digitalisation.

 

• This material is not intended to provide investment advice or be considered a personal recommendation.
• The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
• Past results are not a guide to future results.
• If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
• Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.