• Saxo Markets says investors should pay attention to Asian markets, particularly China
  • China’s economy in the process of rebounding across the board from its covid-19 lows
  • China’s heavy hand approach to regulating fintech companies appears to be softening

CEO of online trading platform Saxo Markets Australia Adam Smith reckons investing in the Chinese market in the near future could present opportunities for investors.

Smith told Stockhead the current global landscape is experiencing a significant shift, with high volatility in bonds and numerous countries grappling with inflation to varying degrees.

He said ongoing conflicts like the one in Ukraine are also impacting the global economy, making traditional investment strategies potentially less effective.

“We are currently in a period of what many are calling fragmentation – globalisation is giving way to countries forming alliances to maintain and improve their respective economic standings,” he said.

“Volatility creates opportunity for the brave, and while it may be a scary time for both new and experienced investors, it is worth shifting your attention to what’s going on in the Asian markets – paying a particularly close eye on China.”

China’s new economic model – the Dual Circulation Strategy (DCS) – is focusing on domestic, rather than external circulation and looking to limit their over-reliance on exports.

“It is worth keeping an eye on their economy and how it is responding to global and domestic factors,” Smith said.

Here are three reasons Smith thinks investors may see success investing in the Chinese market in the near future.


1. China is embracing construction season

China is currently in the midst of peak construction season, which runs from March through to June.

“As steel stockpiles and iron ore inventories continue to fall, I predict that the buying of iron ore will continue, as well as the purchasing of metals like copper and aluminium,” Adams said.

Adams has previously discussed the strength of commodities in the current economic climate, and said he can see this holding true heading into the near future.

He said China’s economy appears to be in the process of rebounding across the board from its Covid-19 lows

“According to China’s National Bureau of Statistics, their GDP grew by 4.5% in the first quarter of 2023 with market forecasts at around 4%,” he said.

“March 2023 retail spending was up 10.6% compared to the same time 12 months ago.

“While the economic recovery is by no means complete, there are initial signs that things are getting back on track after China’s GDP was severely impacted by pandemic restrictions.”


2. Chinese credit data is improving

China’s inflation data softened in recent months, while March’s credit data came in stronger than expected. New loans to the household in March also increased to RMB1,245 billion.

“It is worth keeping an eye on these metrics in the months ahead to see whether these trends continue,” Smith said

He said is also worth noting that the way that the Chinese financial system operates means that they are often out of step with the rest of the world’s financial sectors.

“China uses their banks to pass on funding to both local governments and corporate entities to help the economy grow,” he said.

“The pressures on US regional banks affected share prices, while the merging of Switzerland’s Credit Suisse and UBS affected confidence in European banks.

“This insulation from wider pressures does, however, mean that Chinese banks are often in a different credit cycle stage to the rest of the world.”


3.China adjusts approach to regulating fintech

Smith said a lot has been made of the recent pressures that Chinese regulators have placed on ecommerce and internet platform companies.

“Since late 2020, China’s fintech sector has been the subject of sustained scrutiny, while enhanced data privacy and security laws were implemented in 2021,” he said.

“However, a speech from President Xi Jinping at the Central Economic Work Conference in December 2022 suggests that these crackdowns may be a thing of the past.”

He noted the CEWC called for China’s science and tech policy to “focus on self-reliance and self-improvement” while also highlighting the need to “support platform companies in leading development and creating jobs”.

“The effects of regulators have, in part, led to Alibaba announcing that they will be splitting their company into six independently run businesses, and these six businesses will all have the opportunity to become publicly listed,” Smith said.

In an email to employees, Alibaba’s CEO Daniel Zhang wrote that “the market is the best litmus test, and each business group and company can pursue independent fundraising and IPOs when they are ready”.

“It is a big shift for the company, and Alibaba is describing it as the most significant governance overhaul in the platform company’s 24-year history,” he said.

“I believe these listings present a potential future opportunity for shrewd investors.”

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The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.