5 Signs That The Dragon Will Soar: What China’s Path For Growth Means To You As An Investor

5 Signs That The Dragon Will Soar: What China’s Path For Growth Means To You As An Investor

We’re halfway through the year as the world opens up, and investors are indeed on the lookout for the markets that will grow along with a burgeoning economy. And one such market that many investors should keep an eye out for is China.

As an economic powerhouse, China will continue to play a significant role in the global market as it starts to position itself for economic recovery and big growth.

We take a look at the economic data coming out of China and discuss the key policies and measures based on expert insights from Principal Asset Management.

What are the signs that point toward China’s recovery?

Based on the data compiled by the World Bank from 2011 to 2021, China’s economic performance consistently remained at about 5% GDP growth with its highest being at 9.55% back in 2011.

China, United Kingdom, United States, Japan 2011 – 2021 GDP Source: World Bank. Disclaimer: Please noted that past performance is never a guarantee of future returns. 

In 2021, however, China recorded an 8.1% GDP growth which is the fastest the country has experienced in 10 years. The GDP growth experienced by China beats market expectations, narrows the gap with the US and could possibly surpass the US by 2028.

This boost in growth, which overshot the government’s targeted expectation of 6.6%, further solidifies China as the world’s second-largest economy and lays the foundation for a steady economic recovery path.

Here’s what you need to know about China’s investment outlook

While the boost in GDP builds confidence for investors in China, it is the key market “signifier” that investors should be aware of that shows the country’s path to economic recovery.

From the ease of Covid restrictions in Beijing and Shanghai to the recent PMI index performance in June, the country has started to lay the foundation for a stronger economic return in 2022 and beyond.

The experts at Principal have highlighted the following 5 key signs to look out for in terms of China’s investment outlook.

Point 1: Positive GDP performance even during the pandemic

In 2020, most major economies were reeling from the effects of the pandemic with countries such as Japan, the United States, and the United Kingdom, all reporting a negative GDP growth rate.

China, however, was able to record a positive GDP growth rate of 2.3% in 2020 and was the only major world economy to do so during the height of the pandemic.

Thanks in part to its fast and sustained response to the coronavirus, China was still able to economically expand and is expected to continue the trend with economic growth of 4% in 2022.

Point 2: Effective control and prevention of Covid outbreaks

covid business restrictions

The constant restriction placed by the government on Covid outbreaks has been the major factor for foreign investors being wary of investing in China. The two-month lockdown experienced by Shanghai and other Covid-related restrictions has led to the overall number of investment deals dropping by 29% compared to last year.

Since then, the government has started to ease its Covid restrictions and lockdown policies to bring foreign investors back into the Chinese market. This, coupled with reducing the quarantine period to one week, has brought a much-needed boost to the country as well as a possibility of it moving beyond the “Zero-Covid” policy.

Point 3: Government measures to stabilise the economy

In addition to the easing of Covid restrictions, China has also introduced economic stimulus packages that are expected to boost growth and lead to a major rebound in the economy.

The 33 detailed policy measures cover six major areas such as fiscal and monetary support, stabilising investments, promoting consumption, food and energy security, as well as stabilising the supply chain.

Point 4: A strong rebound in PMI and beating market expectations

One indication that could point towards China’s market recovery comes from its recent purchasing managers’ index (PMI) performance which experienced its fastest growth in almost a year in June 2022, after the easing of Covid restrictions.

Understanding PMI and its importance

The purchasing managers’ index, more commonly referred to as PMI, is an index used to determine the prevailing directions of economic trends in the manufacturing and service sectors.

Through PMI, you can get valuable insights into the state of a country’s economy in general and its manufacturing sectors.

The non-manufacturing/services PMI rose to 54.7 points in June, the fastest growth since July last year, while the manufacturing PMI jumped to 50.2 points.

The strong rebounds in non-manufacturing PMI indicate the increased demand in areas such as retail and road transport while the uptick in manufacturing PMI highlights the country’s factory activity expanding at its fastest in 13 months.

Point 5: Renewable energy initiatives are showing good results

In the last decade, China has set ambitious targets for renewable energy. In its previous 5-year plan (2016-2020), the country had set targets to source over one-third of its energy sources from non-fossil fuel sources.

Today, it is the world’s largest wind and solar energy producer. In 2020, more than half of the energy used for its national grid already comes from renewable sources. China also plans to increase its use of renewable energy sources up to 33% by 2025.

According to Principal, there are opportunities to benefit from China’s move towards decarbonization, as well as the government’s investments into the country’s reopening with policy easing and fiscal stimulus.

Investing in China’s current recovery and future growth with Principal

If you’re ready to invest in China, you can invest with EPF savings (diversifying your investment exposure to China) or use cash. With Principal, you can invest as little as RM1,000 using EPF (or RM500 with cash) and have exposure to top-listed stocks in China:

Fund nameTop holdings
Principal Greater China Equity Fund- Tencent Holdings Ltd
- Alibaba Group Holding Ltd
- Taiwan Semi Conductor Manufacturing Co Ltd
- AIA Group Ltd
Principal China Direct Opportunities Fund- YTO Express Group Co Ltd ORD
- Sichuan Teway
- Food Group Co Ltd ORD
- RS Macalline ORD
- Minmetals Capital Co Ltd ORD
Principal Greater Bay Fund- Tencent Holdings Ltd ORD
- AIA Group Ltd ORD
- BYD Co Ltd - A ORD
- China Merchants Bank Co Ltd ORD
Principal Islamic Asia Pacific Dynamic Equity- Samsung Electronics Co. Ltd
- Reliance Industries Ltd
- Taiwan Semiconductor Manufacturing
- Alibaba Group Holding Ltd
- Tencent Holding Ltd
Principal Asia Pacific Dynamic Growth- Taiwan Semiconductor Manufacturing ORD
- Tencent Holdings Ltd ORD
- Alibaba Group Holding Ltd ORD
- LONGi Green Energy Technology ORD

*The holdings listed do not constitute a recommendation to purchase or sell a particular security. Cash and/or derivative positions that are not part of the core investment strategy will not be reflected in the top holdings list.

Seize the dragon with Principal and get rewarded with up to 0.88%!

Ready to invest in China? Grab the opportunity to invest in China and earn rewards at the same time!

To enjoy the rewards, just sign up during the promotion period stated below:

Sign up periodReward by total net investment amountNew Investor reward
20 July - 7 August 2022 (Early Bird Offer)Reward from 0.18% to 0.88%
with an additional of 0.18% of your total net investment amount
A welcome reward of RM30 TNGD eWallet credit
8 August – 8 September 2022Reward from 0.18% to 0.88%
of your total net investment amount

View the promotion details here: https://www.principal.com.my/en/offer/invest-in-china

You can easily sign up in 4 simple steps to start investing:

  1. Register at the website
  2. Verify your identity
  3. Create your account
  4. Start investing at Principal online investment portal

Or you can contact Principal Asset Management or visit their website here to learn more about the rewards and how to sign up!

You are advised to read and understand the Prospectus, Information Memorandum and/or Disclosure Document including any supplemental thereof and the Product Highlight Sheet (if any) before investment. A copy of the said documents have been registered with the Securities Commission Malaysia (SC) and may be obtained at our offices, distributors or our website at [www.principal.com.my]. The registration of these documents does not amount to nor indicate that the SC has recommended or endorsed this product or service. The issuance of any units to which the said documents relates will only be made on receipt of an application referred to in and accompanying a copy of the relevant Prospectus, Information Memorandum and/or Disclosure Document. Investing involves risk and cost. You should understand the risks involved, compare and consider the fees, charges and costs involved, make your own risk assessment and seek professional advice, where necessary.

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