While investors shied away from China amid recent regulatory crackdowns in the country – and especially problems in the real estate sector – global asset manager T. Rowe Price says the short-term volatility creates an “attractive” investment opportunity for the next year.
Globally, it’s much easier for investors to invest in companies that are benefiting from the disruption from Covid-19 than investing in Chinese stocks – but that could change soon as pandemic behavior continues to normalize, said T. Rowe Price its annual world market outlook.
American investors have largely shunned Chinese stocks in recent months as regulators crack down on big real estate developers like Evergrande, which has been on the verge of default since the summer.
Despite the recent slowdown in the real estate sector, China’s economy remains relatively strong – with GDP growing 4.9% in the third quarter, solid exports and a stable currency.
Chinese President Xi Jinping continues to cement his power through political reforms, but “regulation is usually done in cycles,” said David Eiswert, portfolio manager of T. Rowe Price’s Global Focused Growth Equity Strategy fund.
“China is in a regulatory cycle where they are using the global flood of liquidity to address real estate problems,” he says, adding, “in a way, China is fixing the roof while the sun is shining.”
As the regulatory cycle is expected to weaken in the next two to three quarters, Eiswert says there is “attractive” upside potential and short-term volatility “should be viewed as an investment opportunity, not something to be avoided”.