Why new reforms make Chinese stocks attractive?

Chinese stock valuations are currently low and potential gains from the government's reforms are far-reaching, making investments in China more attractive.

By InvestSMART source · 10 Sep 2014

By InvestSMART source ·
10 Sep 2014

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It’s been the envy of the world for decades, however in recent years, the Chinese economy has faltered by its own lofty standards. Along with slower growth, Chinese debt mounted alarmingly, to the point where in four consecutive years net debt was 30% more than the total economy.

This was a position not unlike the sub-prime bubble in the United States and investors started to look elsewhere. To their credit, the Chinese government recognised the country’s predicament and made sweeping reforms, which bode well for long-term, sustainable growth. Chinese stocks also have plenty of room to rebound, and it’s for this reason the world’s second largest economy represents an attractive investment opportunity.

In the meantime, risk-tolerant investors should consider an overweight position in Chinese stocks within their emerging market allocation.

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Frequently Asked Questions about this Article…

Why have Chinese stocks become more attractive to investors recently?

Chinese stocks have become more attractive due to recent sweeping reforms by the Chinese government aimed at ensuring long-term, sustainable growth. These reforms have created a positive outlook for the economy, making Chinese stocks an appealing investment opportunity.

What challenges has the Chinese economy faced in recent years?

In recent years, the Chinese economy has experienced slower growth and mounting debt, with net debt exceeding the total economy by 30% for four consecutive years. This situation was reminiscent of the sub-prime bubble in the United States, causing concern among investors.

How have Chinese government reforms impacted the investment landscape?

The Chinese government's reforms have positively impacted the investment landscape by addressing economic challenges and setting the stage for sustainable growth. These changes have made Chinese stocks more appealing to investors looking for opportunities in emerging markets.

Is it a good time for risk-tolerant investors to consider Chinese stocks?

Yes, it is a good time for risk-tolerant investors to consider Chinese stocks. With the potential for rebound and the positive effects of government reforms, Chinese stocks offer an attractive opportunity within an emerging market allocation.

What similarities exist between China's recent economic situation and the U.S. sub-prime bubble?

China's recent economic situation, characterized by mounting debt and slower growth, bears similarities to the U.S. sub-prime bubble. In both cases, high levels of debt raised concerns among investors, prompting a search for more stable investment opportunities.

How does the size of China's economy influence its investment appeal?

As the world's second-largest economy, China's size plays a significant role in its investment appeal. The potential for growth and the impact of recent reforms make it an attractive option for investors seeking opportunities in large, emerging markets.

What role do government reforms play in ensuring China's long-term economic growth?

Government reforms are crucial in ensuring China's long-term economic growth by addressing existing challenges and creating a more sustainable economic environment. These reforms help stabilize the economy and enhance the attractiveness of Chinese stocks to investors.

Should investors consider an overweight position in Chinese stocks?

Investors with a higher risk tolerance might consider an overweight position in Chinese stocks within their emerging market allocation. The potential for rebound and the positive impact of government reforms make Chinese stocks an appealing option for those seeking growth opportunities.