With Covid-19 outbreak crashing many US-listed stocks and sending waves of volatility out across global markets, Chinese equities are showing decidedly tamer fluctuations.
“It is very impressive that China, despite being the centre of the coronavirus epidemic, has the best performing equity market globally,” says Bhaskar Laxminarayan, chief investment officer Asia at Bank Julius Baer.
This has global investors starting to think about whether Chinese A-shares are the new safe haven. “I would not use the term ‘safe haven’ as the right way to approach Chinese equities,” says Laxminarayan, noting that a better one might be to start seeing them as becoming a core asset class.
“In the last two years, we have been pointing out that China equities and the Chinese market, in general, from an asset class perspective, will rise to be a core asset class over the next five to ten years,” he notes, adding that if you have a discussion with any client today about his or her portfolio mix you would have to include the US markets, but in five to ten years this will be the case too with the Chinese market.
Other analysts – though they were reluctant to be named – weren’t as prudent. “China is the best safe haven and the Noah’s Ark of the stock market," says an analyst from a Chinese securities company. “The Chinese bond market is quite stable, and it is possible that global investors might rush into this market as a hedge.”
A Chinese investment manager at another firm lent credence to the theory noting that there are already signs of recovery in terms of China’s Q2 economic growth. “Although the Chinese equity market is being impacted by the Covid-19, the volatility is limited and we are positive regarding the long-term performance of the market.”.
Laxminarayan too highlights the fact that China has managed to control the impact from the external trade war and the internal epidemic. “The rationale behind being positive on China is this: China is becoming a domestic economy. It is showing that it can handle a stressful environment.
“Chinese assets, both fixed income and equities, have to be part of anybody's portfolio mix as a core asset class,” he argues, noting that this is not reflected in the way many portfolios are constructed today and this indicates strong potential and investment opportunity.