Sentiment towards China remains weak, but the fundamental backdrop is improving and could represent an opportunity as we go through the year ahead given low valuations. Fidelity China Special Situations PLC (LON:FCSS) Dale Nicholls looks past the macro headlines and analyses the key risks and opportunities facing investors in China in the year ahead.
What is your investment outlook for 2024 given the prevailing macro environment?
After a spell of increased uncertainty over China’s growth trajectory post-Covid reopening, the mood music has moved to a slightly more positive tone in recent weeks. Regulatory concerns are now less relevant, and the narrative again focuses more on growth with 5% annual GDP growth target seems largely on track. We believe the current backdrop reflects a measured growth outlook going into 2024.
In the face of a problematic property market, the refinancing conditions for property developers will likely remain challenging in the near-term, despite more supportive policies. However, this is not detrimental to all property developers. While we don’t expect a huge property rebound given the structural challenges, home prices are showing signs of resilience, especially in top tier cities. Ultimately, the existing divergence between developers could be magnified further. The indiscriminate sell-off provides an opportunity for active investors that can successfully identify the leading players, who are most likely to benefit from lower funding costs and can gain market share as cash-strapped developers struggle.
