China faces several challenges in early 2021. Of course, it does not have to face the difficulties of 2020 with the outbreak of the pandemic, but it does have to face problems such as the large increase in investment capital that made it a crowded trade, the rise in returns of treasuries, the dollar’s rise, the as-it-seems tough stance of the Biden government and internal disputes with the technological sector.
Estimates for 2021 want growth to literally take off as analysts' average estimates give a GDP growth rate of over 9.0%. This will be achieved with the support of the private sector and the intensification of efforts to reduce financial risk.
The official target for 2021, as set by the Chinese government, expects a 6% growth rate. With the momentum that the Chinese economy has gained, but also the support that has already existed, analysts believe that there is a possibility that no other support will be further needed. However, considering that the resurgence off the pandemic outside China has been overwhelming and also considering the combination of problems described above, we do not rule out that at some point a new support, mainly from PBoC, will be considered necessary for the stabilization of the system.
The first quarter of 2021, shows that the increase in production is what triggers increased growth rates. In addition, this year's Chinese New Year celebrations have boosted consumption, also important for overall GDP support.
The stabilization of the world economy is an important parameter for China’s smooth economic development. GDP growth in Europe and America will also lead to an increase in exports.
Technological sector: From an advantage to a problematic asset or a new opportunity?
In recent years, Chinese technology companies have managed to grow and compete with their American counterparts. This has led to overexposure of investment portfolios in this sector, with the result that now that the technological sector is facing a number of problems, the impact on the Chinese stock market is disproportionately large.
The pressures of recent weeks have led to losses of almost 30% for the Chinese technological sector. More specifically, strong pressures have been put on the five largest Chinese technology companies, as shown in the chart below.
In our view, looking at the long term, the above giants and probably others, have been very attractively valuated. Realizing that the short-term outlook remains shady and with Chinese companies accustomed to significant losses, we can not ignore the fact that at current levels there are investment opportunities. An investor can take advantage of these opportunities directly and efficiently by investing in XSpot Wealth's Growth and Growth ESG portfolios.