Chinese assets raise investors' confidence

Fiscal measures, targeted industrial policies, accelerating innovation attract global capital

China's resilient economy, robust growth potential and improving corporate profitability are fueling more optimism and renewed interest in Chinese assets among foreign investors.

Driven by advancements in technology and rising confidence in policy support to stabilize growth in the second half, global investors are ramping up their exposure to Chinese equities and bonds.

Major foreign financial institutions, including United States asset manager Franklin Templeton, investment bank Goldman Sachs and Swiss bank UBS have stepped up allocations or expressed optimism about Chinese equities, citing favorable valuations, a peak in China-US trade tensions and optimism regarding China's artificial intelligence-led transformation.

Market watchers and economists said a combination of proactive fiscal measures, targeted industrial policies and accelerating technological innovation is reinforcing China's appeal as a destination for global capital.

According to data released on Monday by the National Bureau of Statistics, China's factory activity gauge improved marginally in June, as the official purchasing managers index for the manufacturing sector came in at 49.7 in June, up from 49.5 in May. PMIs for equipment manufacturing, high-tech manufacturing and consumer products came in at 51.4, 50.9 and 50.4, respectively, remaining in expansion territory for two straight months.

"The story of China now is about growth," said Fang Dongming, head of China Global Markets at UBS.

Foreign investors will be attracted as long as companies promise growth and profit, whether in tech, healthcare, new energy or new types of consumption, Fang said.

Franklin Templeton has started edging back into Chinese stocks for the first time in years, with a group of its funds managing around $2 billion buying into Chinese stocks in recent weeks, Zehrid Osmani, head of the company's Global Long-Term Unconstrained team, told Reuters recently.

The company believes that trade tensions with the US have peaked, and China is expected to further support its technology giants.

Economists believe that China is well-positioned to achieve its annual growth target of around 5 percent, backed by proactive fiscal policy and moderately accommodative monetary policy.

Zhang Xiaoyan, associate dean at Tsinghua University's PBC School of Finance, said that China's top leadership may sharpen its focus on ensuring domestic economic stability and maintaining stable relationships with trading partners, which would further boost confidence of domestic and foreign investors.

Liu Qiao, dean of Peking University's Guanghua School of Management, said that new policy tools in the second half may include fiscal transfers or cash subsidies for low-income groups, and supportive policies to address pressure on enterprises, especially listed companies, which would improve corporate cash flow and strengthen investment appetite.

Driven by this favorable policy environment and long-term opportunities in sectors like technology, new energy and advanced manufacturing, global asset managers are reassessing their China allocations.

The return of global capital is reflected in broader data. According to Goldman Sachs, global active funds increased their China equity allocations from 5 percent in late September to 6.4 percent by late April. The investment bank maintains an "increase" stance for Chinese stocks, citing improving profitability, foreign capital inflows and long-term value in yuan-denominated assets.

Fu Si, China portfolio strategist at Goldman Sachs, has forecast that the CSI 300 Index could reach 4,600 points, about 10 percent above current levels. Similarly, the MSCI China Index, widely tracked by global investors, is expected to rise another 10 percent in the coming months, supported by its current price-to-earnings ratio of just 11.5.

Goldman Sachs also identified artificial intelligence as a key growth driver. It estimated that AI proliferation could lift the overall profitability of Chinese stocks by 2.5 percent annually over the next decade. China's AI breakthroughs may attract $200 billion in fresh capital into its equity market, potentially driving stock prices up 15 to 20 percent.

Zhang Di, chief macro analyst at China Galaxy Securities, highlighted that new policy-based financial instruments are likely to be introduced soon to support economic growth.

Contact the writers at shijing@chinadaily.com.cn