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.

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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