China: is its equity market oversold, or is it an opportunity to invest?
Chris Ching Headshot
Christopher Ching
Investment Specialist
Published 2 June 2022
Share article

With concerns around global economic health resulting from rising inflation and interest rates, continuing economic disruption from COVID-19, and Russia’s military action against Ukraine, equity markets across the world are down.

China’s equity market CSI 300 is down 19.2% since the beginning of this year, compared to -15.1% for the S&P500 and -3.3% for the S&P/ASX2001

Russia and COVID-19 concerns – are they ‘overdone’?

For China, market concern is centred around two main aspects:

  1. Russia’s invasion of Ukraine and the spill over effect on China
  2. COVID-19 imposed lockdowns in major cities including Shanghai.

It may well be that these concerns have been ‘overdone’.

Spill over effect from Russia Ukraine conflict

Many have drawn parallels between Russia and China and the possible economic fallout should China suffer decoupling from global markets as Russia has.

China, accounting for 18% of global GDP versus Russia’s 3% and being the largest exporter in the world, makes cutting ties with China easier said than done.2

Although the rhetoric has ramped up as political tensions heightened, there has been no evident shift when it comes to actual trade.

COVID-19 lockdowns

On China’s COVID-19 situation, Shanghai has been under lockdown since late March 2022. Being a metropolis generating over 3.5% of the country’s GDP3 the lockdown has unsurprisingly resulted in relatively weaker current economic data.

As of 17 May, Shanghai reached their internal target of three consecutive days of no new COVID-19 cases within the broader community, allowing the most stringent of restrictions to be loosened4. Already, Tesla’s Shanghai Giga factory is back online along with other manufacturing plants5.

Many believe the worst of the lockdowns may be over and the return to normality will only increase from here on, albeit with bumps along the way.

With the 20th National Party Congress to be held later this year, the government will do its utmost to ensure as much of the economy is back to normal and capital markets are functioning well if not riding on positive sentiment to ensure a smooth transfer for the next generation of China’s leadership.

Key aspects making the case for an investment in China

In addition to these factors, there are three broader aspects which may add to the case for an investment in Chinese equities:

  1. Policy divergence from the West
  2. Attractive valuations
  3. Chinese equities are substantially under-represented by the market and index providers.

China’s accommodative monetary stance

Contrary to the US’ monetary tightening stance, China is embarking on accommodative monetary policy settings6.

In addition to front-loading of fiscal expenditures, the State Council’s Financial Stability and Development Committee pledged to actively roll out accommodative policies in various industries that are conducive to the market. On 24 May, the State Council stepped up tax relief for Small to Medium Enterprises (SMEs) by 140 billion yuan.7

In addition, on 25 April the People’s Bank of China (PBoC) cut various borrowing rates including the required reserve ratio (RRR).8 These accommodative policies will be conducive “for the high-quality development and supply-side structural reform.”

It is expected that infrastructure, the digital economy, and green initiatives will receive further policy boosts in the future – areas where we see long term potential for China’s new economy.

Attractive valuations

We believe the market has priced in much of the downside risks.

The CSI 300 is now trading at 11.7x forward PE; one standard deviation below its three-year historical average.

The price corrections year to date has, in our view, made selected sectors and companies attractive for long term investors.

With the excessive selloff in the market partly driven by non-economic factors, our investment team is starting to deploy more capital into high quality companies in oversold sectors.

China is under-represented and under-allocated

Finally, Chinese equities are still substantially under-represented by the market and index providers.9

Currently, China accounts for only 3.47% of the MSCI AC World Index10 (ACWI), with onshore listed A-shares comprising an even smaller allocation.

With China representing 18% of global GDP and having the second largest stock market in the world by market capitalisation, index providers simply must adjust China’s relative exposure to adopt a more true-to-form representation of the economy.11

With full inclusion, Chinese equities may comprise over 40% of the MSCI Emerging Markets Index and 6% of MSCI ACWI.12

This presents an attractive opportunity to allocate into China before both passive and institutional investors start adjusting their portfolios to reflect these benchmarks.

Beyond this, the diversification benefit and potential for alpha generation in a large inefficient market cannot be ignored by any truly diversified portfolio.

For more information about our capabilities offering access to Chinese equities, please get in touch.


1. FactSet, total return from 31 Dec 2021 to 13 May 2022.
2. Statista, 2022 < https://www.statista.com/statistics/270183/countries-with-the-largest-proportion-of-global-gross-domestic-product-gdp/>
3. Bloomberg 17 May 22 <https://www.bloomberg.com/news/articles/2022-03-28/shanghai-braces-for-consumer-slump-limited-supply-chain-shock>
4. https://www.bloomberg.com/news/articles/2022-05-16/shanghai-hits-easing-goal-of-three-days-without-community-cases
5. ChinaAMC and Reuters 11 May 22 <https://www.bloomberg.com/news/articles/2022-05-16/shanghai-hits-easing-goal-of-three-days-without-community-cases>
6. People’s Bank of China, 4 May 22 <http://www.pbc.gov.cn/en/3688110/3688172/4437084/4546950/index.html>
7. The State Council, People’s Republic of China, May 24, 2022.
8. People’s Bank of China, 15 Apr 22 <http://www.pbc.gov.cn/en/3688229/3688335/3730270/4532114/index.html>
9. MSCI, Paving the way to China, 2014.
10. MSCI ACWI, end April 2022.
11. Statista, 2022 and Securities and Futures Commission, 30 March 2022 <https://www.sfc.hk/-/media/EN/files/SOM/MarketStatistics/a01.pdf>
12. China and the future of equity allocations, MSCI, June 2019.

Important Information: This material has been prepared by MA Investment Management Pty Ltd (ACN 621 552 896) (“MAIM”), a Corporate Authorised Representative of MAAM RE Limited ACN 135 855 186 AFSL: 335783. The material is for general information purposes and must not be construed as investment advice. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer or invitation to purchase, sell or subscribe for in interests in any type of investment product or service. This material does not take into account your investment objectives, financial situation or particular needs. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. Any investment in a fund managed by an affiliate of MA Financial Group is subject to the terms and conditions of the relevant fund offer document. This material and the information contained within it may not be reproduced or disclosed, in whole or in part, without the prior written consent of MAIM. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners.

Nothing contained herein should be construed as granting by implication, or otherwise, any licence or right to use any trademark displayed without the written permission of the owner. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of MAIM. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this material may contain “forward-looking statements”. Actual events or results or the actual performance of MAIM or an MA Financial Group financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. Certain economic, market or company information contained herein has been obtained from published sources prepared by third parties. While such sources are believed to be reliable, neither MAIM, MA Financial Group or any of its respective officers or employees assumes any responsibility for the accuracy or completeness of such information. No person, including MAIM and MA Financial Group, has any responsibility to update any of the information provided in this material.

© Copyright 2024 MA Financial Group. All rights reserved. The MA and MA Financial Group logos are registered trademarks of MAFG Operations Pty Ltd. We invest. We lend. We advise.’ is a trademark of MAFG Operations Pty Ltd. Assets Under Management (AUM) current as at 31 March 2024 and Managed loans current as at 29 February 2024. All other facts and figures current as at 31 December 2023.
This webpage is provided by MA Financial Group Limited (ACN 142 008 428) on behalf of MA Financial Group Limited and its related bodies corporate (referred collectively as MAF) for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Before acting on any information contained on this webpage, you should consider the appropriateness of the information having regard to your particular objectives, financial situation and needs and seek professional advice. Refer to the terms of use for further information.
Linkedin icon
Follow us