GlobalX – China Outlook, 2024

China, the second largest economy in the world, has been underperforming in the market since late 2020. However, the authors of this report believe that 2024 presents an opportunity for stock pickers as valuations have become disconnected from fundamentals. Despite uncertainties such as the U.S. election cycle and hawkish rhetoric, valuations appear to be discounted and fundamentals seem to be improving. Consensus earnings-per-share estimates for the MSCI China Index in 2024 project a strong 14.2% growth, and the market has been down for three consecutive years. The authors see room for a rebound. Several key points are highlighted in the report. Firstly, stimulus from the Chinese government has been steady since mid-2023, although slower than desired by the market. Signs of stabilization and growth are expected to continue emerging throughout 2024. In terms of consumption, policymakers are likely to focus on enhancing effective income rather than large-scale vouchers, indicating a preference for targeted distribution adjustments. The authors also mention the positive developments in geopolitics, with meetings between senior officials from China and the U.S. in 2023, culminating in a summit between President Xi Jinping and President Biden in November. They expect U.S. politicians to be more talkative than impactful during the 2024 election cycle, as tariffs have proven challenging for U.S. inflation. Additionally, any signs of improved external demand for Chinese goods could be a significant boost for the country's economy. The report acknowledges President Xi's shift in policy towards prioritizing housing for living, not speculation, and government measures to avoid spillover into other sectors. Chinese households' trend of moving savings from real estate to capital markets is also seen as encouraging. The authors note that consumer confidence is improving as China reopens following the severe lockdown period. Finally, they highlight that the MSCI China Index is currently trading at lower price-to-earnings and book value ratios compared to historical averages, suggesting undervaluation.