Carmignac: Chinese equity update

Carmignac: Chinese equity update

Equity China

This is a market commentary by Gergely Majoros, Member of the Investment Committee at Carmignac.

To the casual observer, it would seem every time investors start to question the “investability” of the Chinese equity markets, they embark on a rally shortly thereafter. And here we are again. Following an initially negative market reaction to the recent Party Congress, Chinese equity markets have reversed strongly.

So are cautious investors seeing something that the wider market is missing?

Probably not. While signals remain quite mixed, it is difficult to ignore that an inflection point for important market drivers has probably taken place. The time to be extremely cautious is behind us, in our view, but we must remain vigilant.

Reasons for optimism

It is fair to say, on a 12-month time horizon, the road for the Chinese economy is positive, even though it is going to be bumpy.

The “post-covid” re-opening of the Chinese economy may not be as imminent as some people believe, despite the government’s updated measures. With vaccination levels still moderate, China is currently facing a resurgence in Covid cases, while also entering the seasonal flu season. Nevertheless, an important brick has been laid and in our view, the direction of travel is an exit from the strict policies.

Furthermore, the recent policy announcements to help the immensely important Chinese property sector are also very constructive. It is going to take time for the damaged sector to come out of its crisis, but this is a step in the right direction. 

.. but caution remains

For international investors, major challenges and uncertainties remain, at least in the short term.

In particular, the issue of the America Depositary Receipts (ADR) listings in the US is significant and unresolved. Indeed, at this moment, a delisting of Chinese companies in 2023 or 2024 remains the more likely scenario. Important announcements confirming or implying a delisting scenario could be made by the SEC in the coming weeks or months.

Further, while the strengthening of Xi Jinping’s premiership was clear, many of the announcements made during the Party Congress were mixed or vague. In particular, markets have been sceptical about the significant changes at the top of the Communist Party leadership. While all the members of the standing committee are supporters of Xi Jinping without any counterpower in place, we are yet to understand how the reformist nature of individuals like the new number two, Li Qiang, will play out. Undoubtedly more detail is required to adopt a constructive view but at this stage, we don’t believe it warrants a more negative outlook for Chinese assets.

Finally, the geopolitical risks regarding Taiwan remain. If this issue could start to clear step by step, it would give an additional leg to the current recovery.


While certain headwinds remain, these have undoubtedly lessened and given the positive trajectory of the Chinese economy, using this market to diversify global portfolios away from the US and Europe does make sense. Inevitably, however, investors should continue to remain very selective in China by identifying the right trends to support, taking into account the long-term objectives of the party and selecting the most attractive companies within those trends.