The darkening relative prospects for China’s equities

Although there has been a little relief for China’s equities today, we still suspect that they will deliver lower returns than equities in other major markets over the next two years. If anything, we think that the case for them to underperform is even stronger now than when we set it out a few months ago.
Oliver Jones Senior Markets Economist
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Developments in China shake up the outlook

Three key developments in China over the past month or so are worth highlighting, as they feed into our broader asset allocation forecasts for the next couple of years. First, what started as a regulatory crackdown on a handful of sectors seems to have morphed into a broader ideological campaign, with major implications for a wide range of Chinese companies. Second, distressed property developer Evergrande has slid further towards default, heightening concerns about the country’s construction sector in particular, and its financial system more generally. Third, China’s economy generally has shown further signs of slowing.

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Putting risky asset valuations into context

This Update compares the valuations of the twelve different “risky” asset classes that we cover on our Asset Allocation service, both relative to one another and to the yields of “safe” assets, as well as explaining how those valuations inform our long-term returns forecasts.

13 September 2021

Asset Allocation Update

Three key points about China & asset allocation

China’s economy has lost momentum recently, and we expect it to more or less tread water over the remainder of this year, even as other major economies continue to recover. Meanwhile, the government’s regulatory crackdown on parts of the private sector seems to be broadening in scope and increasing in severity. We think that these developments have three main implications for asset allocation.

7 September 2021

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The mounting headwinds to China’s equities

A lot of the underperformance of China’s equities relative to those of the rest of the world that we forecast a few months ago has now happened – today’s sharp falls have taken the benchmark indices in both Hong Kong and the Chinese mainland more than 15% below their February highs. But a few recent developments suggest that the outlook for those indices may be even worse than we had initially thought.

26 July 2021

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A closer look at earnings season so far

A strong start to Q2 earnings season in the US has helped cement expectations that EPS growth over the next few years will also be very rapid. With so much optimism baked in, it seems likely to us that the tailwind of rising earnings forecasts, which provided so much support to the stock market over the past year, will fade. That is one reason why we think US equities will make only small gains over the two years.

23 July 2021

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Outlook for risky assets looking less positive

The near-term outlook for risky assets appears much less favourable to us now than it did just a few months ago, for three key reasons.

15 July 2021
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