Abundant opportunities in China’s stock market

China’s economic growth outlook remains optimistic, with favorable current valuations for Chinese equities, as highlighted by investment management organization Invesco China. The economy’s recovery in the second quarter has set a positive tone, with expectations for a rebound in both exports and domestic demand in the latter half of the year. Notably, exports to regions such as the Association of Southeast Asian Nations (ASEAN), Latin America, and Africa are predicted to increase, showcasing the expansion of Chinese companies’ global business.

The first quarter saw year-on-year growth in manufacturing exports, signaling heightened business activity and production among Chinese companies. This positive momentum is anticipated to continue into the second half of the year. Furthermore, retail sales, tourism, and the automotive sector have all shown encouraging data. Retail sales have risen nearly 5 percent year on year, with the e-commerce sector expanding at an impressive rate.

Tourism also showed robust growth, with May Day holiday receipts up 13.5 percent annually compared to pre-epidemic levels. This trend suggests a promising outlook for China’s consumption growth in the coming months. On the investment front, the Chinese stock market performed well in the first half of the year. Both onshore and offshore Chinese equities have delivered positive returns, with sectors such as raw materials, industrials, and communication services achieving notable results.

Ma Lei, chief investment officer of Invesco China, sees numerous investment opportunities in Chinese equities. He highlights themes like global supply chain restructuring, electrification, and the energy revolution as key areas for future growth. Companies within these sectors are expected to experience stronger earnings growth and overall development in the coming years.

Chinese companies currently benefit from cost advantages due to a large local market and economies of scale. These companies are also poised to gain from supply chain expansion and global business growth, potentially capturing a larger share of the global market. Ma notes that many Chinese firms are positioned to capitalize on the global shift towards clean energy. Their significant role in the green supply chain and cost efficiencies provided by the large domestic market place them at the forefront of the electrification and energy transition trends.

Fidelity China Special Situations PLC (LON:FCSS), the UK’s largest China Investment Trust, capitalises on Fidelity’s extensive, locally-based analyst team to find attractive opportunities in a market too big to ignore.

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