Industry Voice: Mapping China's recovery

clock • 3 min read
Industry Voice: Mapping China's recovery

Key points

• The overall risk remains elevated, considering the potential for unchecked regulation and the recently affirmed zero-covid approach

• But the macroeconomic news flow has turned from negative to neutral, including more support from the People's Bank of China (PBOC)

• China is now outperforming most major markets on a YTD basis - illustrating a significant shift in sentiment from three months ago

• Compared to past market recoveries after severe drawdowns, there appears to more room to the upside, but with high volatility

2021 was a record year for dividends around the globe Our EMEA ETF Investment Strategy team believes that while Chinese equities may need to consolidate in the short-term, the recovery since the March 2022 low remains on track.

While many developed markets hit fresh lows over the past weeks and are increasingly grappling with recession fears, China has quietly charted a path to recovery - at least for now. In early May, we looked at past drawdowns and postulated that while the latest episode was severe, it was not unprecedented either. We noted that based on past observations, it was time for a short-term rebound.

In the meantime, with some more encouraging data coming out of China, including receding covid fears and hopes for more fiscal stimulus, the FTSE China 30/18 Capped Net Index has moved up some 18%1 and is now outperforming global, US, European and broad Emerging Markets on a year-to-date basis.2 This represents a significant shift in sentiment within the last three months. We are, of course, not out of the woods yet. Short term, China is still slowing down and investors continue to face idiosyncratic risks that can't be found in other markets, most notably unchecked regulation and the zero-covid approach. Nonetheless, we believe it is time to dare a look ahead.

 

To read the full analysis please click here.

 

Sources

1. Source: Bloomberg, based on USD, from May 9th to June 28th, 2022.
2. Source: Bloomberg, June 28th, 2022. Global markets = MSCI ACWI, US = S&P 500, Europe =  STOXX 600 Europe, Emerging = MSCI Emerging Markets. All in USD.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Issued by Issued by Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. Tel: +44 (0)20 7073 8500. Authorised and regulated in the United Kingdom by the Financial Conduct Authority.

© 2022 Franklin Templeton. All rights reserved.

Important data provider notices and terms available at www.franklintempletondatasources.com.

 

Key points

• The overall risk remains elevated, considering the potential for unchecked regulation and the recently affirmed zero-covid approach

• But the macroeconomic news flow has turned from negative to neutral, including more support from the People's Bank of China (PBOC)

• China is now outperforming most major markets on a YTD basis - illustrating a significant shift in sentiment from three months ago

• Compared to past market recoveries after severe drawdowns, there appears to more room to the upside, but with high volatility

More on Emerging markets

European-focused investment grade and high yield credit have highest inflows since April 2020.

Fixed income dominates ETF flows in July

Accounted for $32.5bn

clock 08 August 2022 • 2 min read
Tom Baird of Redington

Emerging markets ex China - is this the future?

Separate allocation

Tom Baird
clock 26 July 2022 • 4 min read
Chris Brightman is the CIO and CEO of Research Affiliates

Research Affiliates: Real interest rates will remain higher even after inflation is tamed

Tougher conditions for capital markets

clock 22 July 2022 • 4 min read
Trustpilot