Is the China market recovering? Here's what to look out for

This article was created in partnership with SGX. The views and opinions expressed are Beansprout's objective and professional opinions.

What happened?

Chinese stocks appear to have fallen out of favour amongst investors in recent years. 

However, we have started to see some green shoots emerging in the Chinese economy. 

This has led some investors to ask us if it might be worthwhile looking at Chinese stocks once again.

In this article, we will be looking at the latest economic indicators to find out the health of the Chinese economy, as well as the ways that we can gain exposure to China market opportunities. 

What are the signs that the Chinese economy is recovering?

#1 - Manufacturing is picking up

Manufacturing activities further expanded in April. The Manufacturing PMI was 50.4, after 50.3 in March, and 12 months of contraction following the short bounce in early 2023 when Covid restrictions were lifted. 

April industrial production rose by 6.7% year-on-year, and 1% over March. Auto and tech products grew strongly, while metals and minerals were weak. Cement and steel contracted year-on-year, mirroring the weak construction and housing sectors.

Exports growth turned positive 1.5% year-on-year in Apr 24 (Mar: -7.5%). Total exports were 8.6% higher than Apr 19. Imports also grew by 8.4% (Mar: -1.9%), pointing to stronger exports ahead.

# 2 Property policy easing

On 17 May, the People’s Bank of China rolled out more support measures for the property sector. Mortgage down-payment ratio will be cut by 5% points to 15% for first homes and 25% for second homes. 

The floor on mortgage rate is removed, and interest rates for mortgages with housing provident fund is lowered by 0.25%.

A RMB300 billion lending facility was launched to fund the local government to acquire existing homes for social housing. 

The central government is also encouraging the local government to purchase or fund the purchase of unsold properties from developers. 

These measures could help to lift confidence in the property sector, where sentiment has been weak. 

How to gain exposure to China through SGX listed products?

For investors looking to access the China market, the Singapore stock exchange offers a diverse range of products.

This would include exchange traded funds (ETFs), daily leveraged certificates (DLCs), structured warrants (SWs), and structured certificates (SCs).

Let us find out more about how you can use these instruments to gain exposure to China’s economic recovery. 

#1 – Exchange Traded Funds

There are 10 China-related ETFs listed on the SGX, offering investors diversified and low-cost access to the China market. 

This would include broad-based ETFs that track key China equity indices, capturing notable names such as Kweichow Moutai, Ping An Insurance, as well as China Merchant Bank. 

There are also sectoral and thematic ETFs that provide exposure to the tech sector or the electric vehicle sector, capturing notable names such as Alibaba, Tencent, and BYD. 

#2 – Daily Leveraged Certificates (DLCs) & Structured Warrants (SWs)

Daily Leveraged Certificates (DLCs) & Structured Warrants (SWs) are financial instruments designed for leveraged trading.

DLCs are short-term trading instruments that offer up to 7x fixed leveraged exposure on the underlying asset, allowing for trading strategies in both bullish and bearish markets without the complexities of options pricing features like implied volatility and time decay.

SWs are options listed on the exchange which allow investors to participate in the price performance of an underlying asset at a fraction of the underlying asset price. They can also be used as hedging tools to reduce or diversify investors’ portfolio risks.

DLCs and SWs are leveraged products issued by third-party financial institutions. You would need to be Specified Investment Products (SIP) qualified to invest in DLCs and SWs.

The top traded DLC underlyings with Chinese exposure in May 2024 include single stocks such as Alibaba, Meituan, and BYD, as well as indices such as the Hang Seng Tech Index (HSTECH) and Hang Seng Index (HSI).

#3 – Structured Certificates 

Structured Certificates (SCs) are structured products with yield enhancement or participation payoffs, predominantly available to wealth management investors

Investors who buy these certificates typically have a neutral view on the market or are keen to earn interest while waiting to buy the underlying at a discounted price to current market level.

You would need to be Specified Investment Products (SIP) qualified to invest in Structured Certificates.

To learn more, read our earlier article about on “What are Structured Certificates and how do they provide potential yield enhancement?”

What are the risks the investing in China?

Despite the green shoots, there are various risks we need to be aware of when investing the China market. This would include continued weakness in consumer spending, as well as US-China trade tensions.

#1 – Consumer spending remains weak 

Domestic consumer spending growth softened in April. Retail sales growth slowed to 2.3% year-on-year (Mar: 3.1%). The prices of goods, which had declined since early 2023, remained weak. 

The consumer price index languished at just 0.3% growth year-on-year in April (Mar: 0.1%), reflecting weaker demand for consumption. 

#2 - US-China trade tensions

On 14 May, US President Biden increased tariffs on US$18bn of imports from China. 

The list covers steel and aluminum, semiconductors, electric vehicles, batteries and solar cells, cranes and medical products including gloves. 

The increase in the tariff rates to between 25% to 100%, from zero to 25%, may hurt Chinese manufacturers.

In addition, we expect US-China tensions to be dialed up in the next few months, as the US elections draw near. 

What would Beansprout do?

After languishing for a few years, the Chinese economy is starting to look more positive.

The exports environment is improving, helping to support the manufacturing sector. 

The Chinese authorities have also rolled out more policy measures to lift confidence in the property sector.

For investors looking to build a diversified global portfolio, it might be worthwhile revisiting the China market once again. 

The Singapore exchange offers a range of instruments for us to gain access to the China market. 

If you are looking for broad-based exposure to the China market, an ETF would offer a simple way to gain access to a diversified basket of Chinese stocks.

For more advanced investors, Daily Leveraged Certificates (DLCs) and Structured Warrants (SWs) offer leveraged exposure to Chinese stocks, while Structured Certificates (SCs) offer investors opportunities to manage risks or enhance yields in a rangebound market. 

Click here to learn more about how you can navigate China market opportunities through SGX exchange listed products, as well as upcoming educational events on the China market. 

Also, join us for an upcoming free SGX Academy seminar on "China's Macro Outlook: Where does China's recovery go from here?" on 18 July to learn more about China's economic landscape and investment opportunities. 

Download the full report here.