Are SA investors banking on China?

Chinese stocks have been on a remarkable tear, outpacing many regional and global markets in recent times. This surge has been attributed to growing optimism surrounding tech breakthroughs like DeepSeek and a shift towards consumption-driven growth by Chinese officials. To delve deeper into the sustainability of this rally and the changing fundamentals of China, CNBC Africa spoke to Thato Mashigo, Portfolio Manager at Sanlam Private Wealth. Mashigo highlighted significant changes in the Chinese economy over the past five years that investors are now beginning to recognize. He mentioned a shift in credit extension from the banking sector towards manufacturing and deep technology, leading to a proliferation of companies in these sectors. While the regulatory crackdowns and slump in real estate created some challenges, there have been positive developments, especially in tech breakthroughs. However, the impact of reduced property prices on consumer balance sheets needs to be addressed to restore positive sentiment. Despite these challenges, green shoots were observed from Q4 of the previous year, indicating a potential turnaround. The conversation then shifted to the concept of US exceptionalism and its impact on global markets. The dominance of US equities in global benchmarks, disproportionate to its economic size, has been a long-standing trend. However, recent structural shifts in the global economy, highlighted by last week's announcements, could alter these dynamics. This could lead to increased capital inflows into other markets, making emerging markets, especially China, more attractive to investors. Valuations within the Chinese equity market were discussed, with Mashigo noting that Chinese stocks remain relatively cheap compared to counterparts in the US and India. Despite geopolitical tensions and lingering concerns from the 2021 regulatory crackdowns, the discount on Chinese equities might be excessive considering the potential earnings growth and opportunities in new emerging sectors. Comparisons were drawn between Japan's corporate reforms and monetary policies with China's focus on domestic demand and policy responses to boost the economy. While Japan's ongoing reforms have shown positive signs, China's emphasis on boosting domestic consumption could provide compelling investment opportunities in various sectors beyond just tech. Mashigo pointed out that in addition to tech, sectors like renewables, new energy vehicles, and domestic consumer brands are emerging as attractive investment prospects in China. He highlighted examples like solar panel manufacturers, shipping and rail companies, and consumer brands like Anta Sports and emerging opportunities in the restaurant industry. Looking ahead, uncertainties surrounding tariffs, especially in the wake of potential reciprocal responses, remain a key concern for investors. The impact of tariffs, particularly in relation to China and the EU, will influence market expectations and growth projections. As the world anticipates further developments, clarity on tariff outcomes will be crucial in determining market sentiment and investment strategies going forward. Overall, the evolving dynamics in the global market and China's strategic focus on domestic consumption present a promising outlook for Chinese equities with diverse investment opportunities beyond the tech sector.