Sharukh Malik
With China's recent developments in artificial intelligence, investors have been reminded of the growth opportunities within the country. Despite these growing opportunities, much of investor attention over the past few years has been on the problem area in China, which is namely real estate. What most failed to realise is that the government has been trying to intentionally deleverage the property market. At its peak, property accounted for 20 to 30% of China's GDP and no country has become rich solely by growing its property market.
Countries such as China can become wealthy through moving up the value chain via various pillar industries, we highlight the electric vehicle supply chain where the Chinese have built up intellectual capacity across all parts of the industry.
We also highlight other pillar industries such as industrial automation, semiconductors, artificial intelligence and pharmaceuticals. The practical problem for the past few years is that, yes, while these new pillar industries have been growing, they've not been growing by fast enough to offset the weakness in property.
So then the question is when is the turning point? We expect by the end of 2026, early 2027 for the new pillar industries to become large enough to drive growth, not just in the short term, but also over the next decade. The turning point could potentially be earlier if the government expands the size of stimulus. So they could potentially increase the amount of funding for the household trading programme and ultimately we think with China trading at currently attractive valuations, investors should be looking at high quality, growing Chinese businesses.
