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A dangerous pariah? Or is China a mighty beast investors can’t afford to shun?

By ROSIE MURRAY-WEST, FINANCIAL MAIL ON SUNDAY, 12 June 2022:

Investing in emerging markets is often a step too far for investors with an ethical bent. Human rights issues and exploitation of labour put them off. Nowhere in the emerging markets world are these issues currently more prominent than in China, still the engine room of the world’s economy despite its problems grappling with the Covid pandemic…

Jason Hollands, a director of wealth manager Tilney, is a China sceptic. ‘Yes, China is the world’s largest emerging market and the second biggest economy,’ he says. ‘So it can be argued it’s too big to ignore from an investment point of view. But there is no disguising the fact that it is an authoritarian single-party Communist state.’ …

ISN’T CHINA JUST TOO BIG TO IGNORE?

Pruksa Iamthongthong is manager of investment trust Asia Dragon, a £530million fund that invests across Asia. Nearly a third of its portfolio is in Chinese companies with Tencent and Alibaba among its top 10 holdings.

‘Now is the time to invest in China,’ she says, pointing to the fact that foreign investors – fund managers and pension funds – are investing billions of pounds once more in Chinese shares via Hong Kong. ‘While stock market conditions are likely to remain volatile over the near term, China’s long-term growth potential remains intact,’ she insists…

James Carthew, head of investment companies at research group QuotedData, says that a combination of circumstances have contrived to ‘unnerve investors’, causing the market falls in China.

These include the state’s dramatic interventions in some sectors including education, where it banned firms from making profits. He adds: ‘At the same time, the Chinese state backed itself into a corner by enforcing a strict zeroCovid policy with severe travel restrictions, factory closures and disruption to supply chains.’

From a Western perspective, Carthew says it is hard to understand why China acted in this way. ‘It may look as though China repeatedly shot itself in the foot,’ he explains. ‘From the state’s point of view, it is trying to rein back some of the excesses in the economy that have widened the gap between the rich and poor and threaten to create dissent against the ruling Communist Party.’

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