The Case For China

Long-term economic growth should pay off for patient investors who can withstand market swings.

- Nellie S. Huang

CHINA IS A COMPLEX COUNTRY.

Its rapid growth and industrialization put it in the class of emerging nations, but its vast size lends it some qualities of a developed country. In just a few decades, China has accomplished “one of the most rapid and far-reaching transformations of a major economy that the world has ever seen,” says Robert Horrocks, chief investment officer at investment firm Matthews Asia.

China is already a global powerhouse, the world’s second-largest economy and the biggest exporter of goods on the planet. Now it’s in the throes of a new phase of economic development—one driven by technology and consumer spending rather than focused on manufacturing and infrastructure.

Yet investors are skittish, and Chinese stocks struggled last year. In 2018, the MSCI China index sank 18.9%. One problem is that economic growth in the Middle Kingdom (a loose English translation of the Mandarin word for China) has been slowing. In recent years, the country’s gross domestic product has grown around 6% annually, down from the 10% average growth of previous years. Trade tensions with the U.S. haven’t helped.

When it comes to China’s growth prospects, investors’ fears are “overdone,” says Kate Moore, chief equity strategist at BlackRock. “China is in very good shape to continue to be one of the largest economies in the world,” she says. Indeed, in early 2019, small signs of economic improvement and a positive step toward a U.S.–China trade agreement sent the MSCI China index soaring 22.2% over the first 16 weeks of the year. (Prices and returns in this story are as of April 19.)