Neuberger Berman Market Insight: Why We Believe China Matters for Markets

HONG KONG SAR - Media OutReach - 21 October 2022 - As China's leaders look to wrap up the 20th Communist Party Congress this weekend, Conrad Saldanha, CFA, Senior Portfolio Manager, Emerging Markets Equity of Neuberger Berman, thought it a good time to reflect on what world's second-largest economy could portend for investors. Saldanha explains in the latest insight that China's policy outlook may create attractive opportunities for both equity and fixed income investors.

While China's sheer size and growth potential make it too big to ignore, many investors have myopically shed Hong Kong and ADR listed shares.

Saldanha recently discussed various aspects of China's starring role on the global stage with his colleagues Peter Ru, China Fixed Income; Meng Ning, Emerging Market Equities; and Charles Nguyen, Managing Director, Public Equities ESG Investing.

The Macroeconomic Picture

Looser monetary policy and stimulus initiatives have helped China chart solid post-COVID-19 recovery with modest inflation. Going forward, Neuberger Berman believes the containment of COVID, a mix of technological innovation and focus on social equality will continue to drive broad economic growth.

On Fixed Income

"We believe China's focus on 'higher-quality', sustainable economic growth will make the market more attractive in the long-run," says Ru. "We also believe China's interest rate is on a long-term downtrend, which could create attractive opportunities for fixed-income investors."

On China A-Shares

Despite China's efforts to make access to onshore markets more efficient, most global investors are underexposed: Though the Chinese economy represents approximately 18% of global GDP^[1], the China A-share market only comprises 1% of the global MSCI ACWI index^[2]. Over time Neuberger Berman expects China's weight in global portfolios to expand as the country's financial markets continue to develop. "While A-shares have declined, we believe valuations are attractive and they are poised for a rebound as Chinese growth recovers," says Ning. Efforts in seeking to achieve carbon neutrality and energy reform has the potential to create additional investment opportunities given China's leading position in wind and solar components and materials.

On the Climate Transition

"China is a global leader in the renewable power industry and has established clear policy commitment in support of climate transition and the protection of natural capital," says Nguyen. "Significant growth potential in the Chinese green bond market is encouraging, too."

On Portfolio Allocation

Overall, Neuberger Berman believes China's massive economic influence (it's expected to contribute 30%* of the world's growth next year), ongoing capital-market reforms, and lower correlation to other developed markets make it an ideal market for global investors to diversify their portfolios.

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