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Twenty years ago China was hailed as the investment opportunity of the millennium, as it threatened to overtake the US as the world’s biggest economy amid breakneck growth. Now it’s lost its way as increasingly authoritarian leader Premier Xi Jinping battles against a string of crises.
Investment funds targeting China and emerging markets became a fixture in many people’s pension and stocks and shares Isa portfolios. Yet they have failed to live up to the hype.
Many will be wondering whether to sell their Isa funds after years of disappointment – if they haven’t done so already.
Over the last 10 years, the Chinese stock market has delivered average growth of just 0.89 percent a year, according to MSCI. By contrast, rampant US equities have grown at an average rate 11.98 percent a year.
This is a huge difference because it compounds over time.
Somebody who had invested £10,000 in the Chinese stock market a decade ago would have just £10,883 today, before charges.
If invested in the US, they’d have a staggering £31,003. That’s almost three times as much.
Hargreaves Lansdown investment analyst Henry Ince said China faces a host of challenges including “deflation, debt, record youth unemployment and a declining population”.
Its economy is forecast to grow by just 4.6 percent this year – slow by its standards – amid falling exports and a property market slump, according to the International Monetary Fund.
The Chinese economy was supposed to spring back in 2023 as Jinping’s Draconian Covid lockdowns were finally eased following protests, but the recovery soon petered out.
Investor sentiment has been smashed by the collapse of property giant Evergrande Group, which went into liquidiation last week with debts of an astonishing £268 billion.
Tensions over Taiwan haven’t helped and last year, US commerce secretary Gina Raimondo said companies were telling her that China had become “uninvestable” as fines, raids and other actions against Western firms made it too risky to do business over there.
Plunging birth rates are adding to the country’s list of problems. Today, China threatens to grow old, before it gets rich.
So can the country’s stock market roar again?
Rebecca Jiang, portfolio manager of JPMorgan China Growth & Income, said most of the bad news has now been priced in and Chinese stock markets now look better value. “We remain optimistic about the long-term prospects.”
Jiang said Beijing’s £220billion stimulus package may help.
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However, Chris Metcalfe, chief investment officer at IBOSS, warned that the beleaguered Chinese property sector is acting as a “lead weight” on investor sentiment.
Chinese stocks may look cheap, but that doesn’t necessarily make them good value, he said.
The country has been hit by the “reshoring” trend, where western countries bring offshore factories back home or shift them to more reliable countries like Mexico or Vietnam, Metcalf said.
China is performing horribly compared to emerging market rival India, whose stock market rocketed 21.29 percent last year.
Metcalfe said: “Whilst world leaders are queuing up to sign high-profile deals with India, nobody in the West wants to be associated with China.”
The Chinese stock market is volatile and good years often follow bad ones, so brave investors could still be rewarded.
FSSA Greater China Growth is a popular fund option despite crashing 25.9 percent last year, illustrating the risks of investing in China.
Otherwise, pension and Isa investors could spread their risk with a broader-based fund such as the JPM Emerging Markets Investment Trust.
As well as China, it invests in India, Taiwan, Korea, Hong Kong and South Africa, although it still fell by 11.9 percent last year.
Victoria Scholar, head of investment at Interactive Investor, said: “Most investors will want some exposure to China and emerging markets, but probably no more than five or 10 percent of their total portfolio.”
China may fly in 2024 but there’s a serious danger that investors could get burned again.