Tuesday, June 4, 2024

Kavan Choksi Talks About Investing in China’s Stock Market



The economy of China has managed to bounce back, at least modestly, from a major slowing that took place at the start of the COVID-19 pandemic in 2020, and a series of restrictive policies that followed. While the country is still facing major economic headwinds, it also retains its position as an integral player in the global economy and the largest emerging market. Kavan Choksi mentions that the stock market of China alone makes up more than one-quarter of the MSCI Emerging Markets Index. Any investor putting their money to work in a broad, emerging market index is likely to own a significant position in Chinese stocks.

Kavan Choksi sheds light on investing in China’s stock market

International stocks can majorly contribute to a well diversified portfolio. It would be a good idea for several investors to include emerging market exposure in their asset mix. After all, even with the prevailing trade tensions, one does still belong to a globalized economy.  Emerging market stocks did struggle considerably in 2022 and lagged performance of developed global markets in 2023. However, in 2024, emerging market stocks ultimately managed to outpace developed global markets modestly. Hence, several savvy investors on the global market now are trying to leverage buying opportunities in emerging market stocks. 

Several investors also prefer emerging market funds that represent a broad index of stocks. The emerging market index tends to provide considerable exposure to Chinese stocks, as they make up around one-quarter of the MSCI Emerging Market Index. It also provides exposure to discerning other markets that help investors to diversify their portfolio, and steer away from the potential risks associated with investing exclusively in Chinese markets. In the recent times, a stronger dollar created headwinds for varied emerging market investors. As investors from the United States put money to work in overseas stocks, a stronger dollar detracts from net performance.

For three consecutive years between 2021 and 2023, China’s equities market declined. Investor scepticism about future earnings has put pressure on Chinese stocks. Investor confidence has to stabilise for the stock market of China to stage a turnaround. In 2024, the stock market of China did show a modest improvement. Its economic trajectory may ultimately determine whether stocks can gather a sustained rally.

Kavan Choksi mentions that investment risks in China also include concerns about accurate financial reporting, as well as ongoing tensions between the U.S. and China. The Chinese government’s potential for direct intervention may also affect specific companies or industries.

Investors in the United States also should keep a close eye on China’s economy as it may impact the U.S. stock market as well, after all economies across the globe have become increasingly interdependent. Several U.S. companies source products from China, for instance. This essentially created supply chain constraints during the height of the COVID-19 pandemic, as many portions of China’s economy were virtually shut down. That had a negative impact on business activity for some U.S. based companies that were dependent on Chinese suppliers. Moreover, China is also the second largest economy in the world and the largest emerging market in terms of stock valuation. Hence, in case China experiences economic challenges or market volatility, it is likely to have an impact on the global economy, which might be reflected in the U.S. stock market as well. 


Author: verified_user