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Chinese New Year offers financial advisors the opportunity to review client portfolios

23 January 2023 RisCura
Lars Hagenbuch, Product Specialist at RisCura

Lars Hagenbuch, Product Specialist at RisCura

Global investment firm RisCura highlights the benefits of investing in China's growing economy while managing risk with a multi-manger approach and ESG lens.

The Chinese New Year, which took place on 22 January, holds deep cultural significance as a time of renewal and new beginnings. The zodiac sign for 2023 is the Rabbit, which is traditionally associated with change and new opportunities, making it an ideal time for global investors to reassess their portfolios and explore new markets for diversification and growth.

Known as the Spring Festival or Lunar New Year, Chinese New Year marks an important day in the lives of most Chinese people. It is a time when many city dwellers travel back to their rural hometowns for family reunions and celebrations, and the exchange of gifts is common. In 2021, the Chinese New Year festival generated significant retail sales, surpassing $100 billion.

According to Lars Hagenbuch, a product specialist at purpose-led global investment firm RisCura, "the recent reopening of the country after abandoning its zero COVID-19 policy resulted in a significant uptick in domestic travellers, and we expect a spike in consumer spending."

He says that China is not considered a typical emerging market due to the size of the economy, first-world infrastructure, and dominance in the manufacturing and renewable energy supply chain.

"In the next decade, China's long-term goal of becoming independent in science and technology will also see the semiconductor and related sectors grow exponentially, providing even more opportunities for investors," says Hagenbuch. "Additionally, the stock market is uncorrelated to most developed and emerging markets, providing investors valuable portfolio diversification benefits."

He says that currently, Chinese stocks are trading at historically low multiples but with continued favourable earnings expectations, suggesting it is an opportune time to invest.

"Investing in China, however, does come with certain risks", says Hagenbuch, "such as volatility and geopolitical threats. The Chinese stock market is also characterised by limited publicly available information about many listed companies, making it more difficult for investors to make informed decisions.

“Asset managers need to perform in-depth work themselves, which often results in them running relatively concentrated portfolios, as there is a limit to how many companies they can research and get to know very well," says Hagenbuch.

“The extra workload means portfolios are often quite concentrated. For investors to maximise their overall opportunity, RisCura advocates a multi-manager approach when allocating to China.”

Applying an ESG lens to investments in China can also help identify good management practices and mitigate other risks.

"By focusing on high-quality Chinese businesses, investors can benefit from diversification, access to a wide range of investment strategies, and the ability to easily navigate the complex Chinese market. We know that companies with strong ESG practices are better positioned to navigate political and economic uncertainty," he says.

Despite the challenges, RisCura believes that the potential rewards outweigh these risks, but Hagenbuch recommends that investors size their allocations appropriately. "At the end of the day, you cannot ignore the second-largest economy in the world," he says.

Hagenbuch concludes, "The Chinese New Year presents an opportunity for financial advisors to discuss the advantages of diversifying with their clients. China's growing middle class presents investors with a wealth of prospects, and in the next decade, the global push for renewable energy will provide even more opportunities."

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