Is China’s stock market relatively appealing?

The news that the authorities in China plan to “optimise” their response to the pandemic while not abandoning their zero-COVID policy has coincided with a surge in its stock market. There is still a risk that this somewhat lighter-touch approach will lead to a bigger rise in COVID cases that subsequently requires more forceful containment measures with adverse effects on economic activity. And we are sceptical China’s stock market has turned a corner for other reasons. Yet, after a prolonged period of underperformance, we see scope for it to outperform further down the road, given its now-depressed relative valuation and the potential for China’s economy to strengthen in the medium term.