Unlocking Opportunities: Navigating Chinese Equity Markets in 2023 Amidst Policy Shifts and Innovation

As the nearly three years of lockdowns in China come to an , will 2023 mark a turning point for equity investors looking into its markets?

In our experience as investment professionals who have been closely following China for over two decades, we recognize that the higher risk premium of Chinese equities compared to other markets can be attributed to government intervention and influence in both the economy and financial markets. We also acknowledge that recovery may not necessarily be smooth or even across all sectors due to ongoing trade-related tensions between China and the US.

Yet, an abrupt departure from stringent COVID policies has driven a rally in Chinese stock markets this year. Sectors like gaming platforms, payment systems, and e-commerce have seen significant uplifts as a result of supportive measures for the property market, along with encouraging regulatory developments for tech companies.

In this paper, we explore several key themes that could shape investment opportunities in China's markets going forward and why we are cautiously optimistic about certn sectors. Innovation within areas such as video games, payments systems, and e-commerce has been a hallmark of growth over the past decade and is expected to continue driving expansion.

Picking winners through stock selection remns crucial for investors looking into Chinese equities given the complexity and uniqueness of its market dynamics.

Key Takeaways:

• Innovation Continues: Focus on sectors that foster technological advancement, such as video games, payment systems, and e-commerce.

• Economic Rebound Potential: Identify companies well-positioned to benefit from an economic recovery in China.

• Common Prosperity Alignment: Look for businesses closely aligned with the government's Common Prosperity goals.

Why We're Constructive:

China has made significant strides in fostering innovation within its tech sector, leading to world-class platforms and services. This tr is expected to persist, offering opportunities for investors.

While volatility may mask buying opportunities, China presents unique investment opportunities that are not easily replicated elsewhere globally.

However, it's essential to approach investing with a balanced perspective:

• Risks in Fixed Income: Be aware of risks associated with investing in fixed income instruments.

• Geopolitical Risks: Trade-related tensions between China and the US will likely continue influencing market sentiment.

• Emerging Markets Vulnerabilities: Consider potential vulnerabilities unique to emerging markets, including liquidity constrnts.

Investing in China: A Strategic Perspective

Capital Group's seasoned professionals offer insight into navigating Chinese equities. Our experience spans over decades, which provides valuable perspective on market dynamics and opportunities ahead.

Victor D. Kohn, Steve Watson, and Andrew Lee bring years of investment expertise to the discussion, offering unique insights into China's evolving economic landscape and investment potential.

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With an eye towards a rebound in China's economy and technological innovation as a core driver of growth, investors should be prepared for both opportunities and challenges. Carefully selecting stocks and positioning portfolios with an understanding of market complexities can help unlock value in this dynamic market.

Acknowledgements: Our gratitude goes to the team at Capital Group who contributed their expertise into shaping this perspective on Chinese equities.

**: The information provided is for educational purposes only and should not be considered as investment advice. Always conduct thorough research and seek professional guidance before making investment decisions.

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