ETF TV, Dr. Xiaolin Chen of KraneShares discusses the investment outlook for China

Presented by Kraneshares.

Margareta Hricova Welcome to ETF TV. Your insight into the world of exchange traded funds, issuers and investments. I’m Margareta Hricova and joining me today is Xiaolin Chen, Head of international at KraneShares and Deborah Fuhr. Welcome Xiaolin and Debbie.

Xiaolin Chen Thank you for having me.

Deborah Fuhr Thank you. Xiaolin, thank you for joining us. What is your outlook for the Chinese economy in 2024?

Xiaolin Chen This is a very important year for China, as this is the second year of President Xi Jinping’s third term. This is the year that they have to deliver the economic results for them to achieve all the economic goal they have set out at the beginning of the third year, which is to modernize the society and urbanize the society. Last year, China delivered 5.2% of GDP growth. This year, we think they’re going right around that level, if not higher than that level. Given the fact that the monetary policy in China today is very accommodative, the Bank of China has cut interest rates multiple rounds bringing the mortgage payment down to make the borrowing costs really low for the corporates to make sure there’s sufficient liquidity in the systems. Last year was marked the first year in a long period of time, if not decades, for China to expand physical spending. On top of that, you have seen or heard all the policy announced by the policymaker from last year and lead to earlier this year nothing but pro-growth with those as a landscape set up for China. We stay very optimistic for China to deliver its economic growth targets. We will expect significant rerating in terms of equities valuation.

Margareta Hricova Even China’s recent strategic moves, including issuing bonds for new infrastructure projects, real estate and market liquidity. How do you see these measures impacting a country’s economic recovery in 2024?

Xiaolin Chen Real estate used to be one of the key drivers for China’s economic growth. No doubt about that. But going forward, given all the consolidation has happened in real estate sector in China over the last few years, it will have to finish its consolidation period. We do think real estate sector is bottoming in terms of impact by regulation, in terms of liquidation. But overall, the housing price falling over the last 2 or 3 years will start to see a bit of a bottoming given purchase restriction get removed, mortgage payment get reduced. In the UK, my monthly payment gone up by 50%. It is exactly the opposite effect happened in China. The mortgage payment is a lot lower than before. That definitely give people more confidence to pursue or buy a house. This also will help the household feel a bit settled in terms of mark to market of their wealth overall. But this will not be the sector going forward to become the key driver for China’s economic growth. Instead, these will provide some kind of like a settling period. I think the next quarter or two will be very important to see if the primary, a secondary start to pick up in terms of sales volume, in terms of finished project. This will have less and less impact in 2024 and going forward, but it will be more settled.

Deborah Fuhr Those are some interesting insights. And how do you see the geopolitical landscape impacting investing in China?

Xiaolin Chen It’s a biggest election year around the world UK, US and some other countries also experiencing election year. So it’s important for China to know who is their counterpart to deal with in a developed market for sure. I don’t expect certain restrictions that impact China. Particularly innovative technology space will get removed overnight, regardless of the election results. That being said, those kind of restrictions introduced over the last 2 or 3 years has been all pressing in the market in terms of opportunity, in terms of the price impact. Those will probably set China back for a few years, but it will not stop China developing. Geopolitical risks is a very important factor to consider in investing in China. Overall, I think it’s only slightly positive side. The reason I say that is China’s leader visited US a couple of times. Xi and Biden literally met a few times and their senior officials meeting each other. Last year, President Xi literally hosted a dinner with quite a few significant US CEO in presence. John Crane, who is our CEO at Kraneshares, had the pleasure to attend the dinner he’s take among all the CEOs. Listen to President XI Jinping’s speech was China is open for business. China approved Mastercard as a business to go into China. Second, China is now reforming its financial markets means allowing for environmental, oil, bank, owned insurance on some of the industries and sectors used to be very restricted with foreign investments. They become more open, more welcoming international investments. I do see signs and actions in place in China that continue to do what they promised.

Deborah Fuhr That was great. Thank you for joining us.

Xiaolin Chen Pleasure.

Margareta Hricova Thank you Kraneshares, for sponsoring today’s episode. And of course, thank you to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.net. Thank you.

ETFTV news does not provide investment advice nor recommend products.

Published on February 15, 2024