Across the board, better-than-expected interim results for the MSCI-China constituents, plus China’s macro stability in a risk-prone world, are starting to convince global money to raise China equity exposure. We believe that after the 19th Party Congress, various reforms, including SOE reforms, will accelerate. These developments will drive more industry consolidation, mixed ownership change and raise ROA/ROE for China’s non-financial listed companies.
The life cycle of four equity pools – India, China, the US and Japan
The well-known philosopher in China, Confucius, said: “at 15, I set out to learn; at 30, I take responsibility for myself; at 40, I see truth behind complexity; at 50, I understand destiny and limits of human efforts; at 60, I agree to disagree; at 70, I follow my own bent while respecting the rules” (子曰：「吾十有五而志於學，三十而立，四十而不惑，五十而知天命，六十而耳順，七十而從心所欲，不踰矩。」).
It appears that the listed equity sample for India is much like a young adult. Starting from a low base, top-line growth is fast, and the outlook on future growth is undoubtedly bright. On the other hand, the listed equity sample for China is much like an established individual looking to move further uphill. This brings bigger challenges at home and abroad, and the key attribute is fast learning and adaption to change. Meanwhile, the US listed equity sample is like an individual at the top of the fame. It has the most well-rounded capabilities and achievements. But some incremental developments, such as seeking short term gains to investors over compensations to employees, are less favorable and also show that its large domestic market has yet to revive. Where as in Japan, the listed equity sample is like a grown-up who has been through ups and downs, and is now seeking understated excellence through growing businesses overseas to offset an aging population at home.
Five features for Chinese equities shown in the comparative study
Read the full report here for detailed comparative study on China’s equity strategy.
Greater China Equity Strategist
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