Chinese market surge: Experts urge cautious entry amid uncertain recovery | Personal finances

Key measures include reducing base interest rates by 20 basis points (bps), mortgage rates by 50 bps and the reserve ratio by 50 bps. The minimum down payment required to buy a home has been reduced. Direct cash transfers can be made to low-income households to stimulate consumption demand.

“These actions will increase liquidity, reduce mortgage rates and incentivize homebuyers,” says Rochak Bakshi, Chief Executive Officer (CEO) and Founder of True North Financial Services.

Reasonable valuations

Evolved investors who want to geographically diversify their portfolios can consider the Chinese market. “It’s the second-largest economy in the world, so it makes sense to make some allowance for it,” Bakshi says.

Even after the rally, valuations remain reasonable. “If you’re looking to diversify into a relatively cheap market, China is a good option,” Avasthi says.

The Chinese government may spare no effort in its attempt to revive the economy. “This stimulus package is the largest in nominal terms in its history, which demonstrates the government’s strong intention,” says Narang.

Will the recovery continue?

Investors contemplating an entry should be aware of the risks. “Government interference in the business sector and the potential escalation of tensions between the United States and China, especially regarding technology, are cause for concern,” says Narang.

Bakshi notes that a Donald Trump presidency could lead to higher tariffs on Chinese imports.

China’s real estate sector has underperformed for years. “This year, new home prices fell at the fastest rate in nine years, resulting in a negative wealth effect,” says Narang.

Problems such as weak household consumption, wage cuts by companies and high youth unemployment persist. If the government does not offer more support, this rally could lose momentum.

China’s aging population is another risk. “The country’s aging demographic, a result of its one-child policy, could lead to a long-term suppression of demand,” Bakshi says.

Investors should carefully evaluate country-specific risks. “This is especially true in a market that is less transparent than the United States. Additionally, US companies are globally diversified, which may not be the case for many Chinese companies,” says Kaustubh Belapurkar, managing director of research at Morningstar Investment Adviser.

Who should invest?

Experienced investors with large portfolios can invest with a horizon of 4 to 5 years. Belapurkar recommends an initial allocation of 3 to 5 percent (of the stock portfolio).

If you are tempted to invest for short-term gains, stay away as chasing short-term gains could cause losses. Following the sharp rise, Bakshi advocates investing through a Systematic Investment Plan (SIP).

Finally, Narang warns that as structural weaknesses in China’s economy persist, the speed of recovery is uncertain and investors should therefore enter with caution.

First published: October 8, 2024 | 20:03 IS