Strategy Note /

China: Xi's coronation speech changes little

  • Drags on China equities investment case: Covid-zero, property debt, tech regulation, US de-coupling

  • End of this phase in President Xi's concentration of power may alleviate some of the domestic drags but not US friction

  • China has underperformed Brazil, India ytd but outperformed Korea, Taiwan: we see opportunity at this valuation

China: Xi's coronation speech changes little
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
17 October 2022
Published byTellimer Research

President Xi's speech at the Chinese Communist Party Congress did not contain rhetorical signals that unambiguously change the key features of the top-down investment case in China equities. At current valuation, we are positive, on an absolute basis and relative to large emerging market peer India.

There was reiteration of the need for growth and development, prominence for the role of the Tech sector (implicitly to counter US restrictions), reiteration of the need for fair growth ("common prosperity") and strident posturing on Taiwan (again, in the face of more brazen US support for independence).

However, there was no signal of a u-turn on zero-Covid, a bumper bailout for property or a termination of tougher anti-trust regulation.

The Congress runs from 16 to 22 October, rubber stamps Xi's potential continued rule until at least 2027 and the broader new leadership roster, and may lay out new nuances in policy.

China equities (Shanghai Composite) are down 23% ytd and on trailing PB of 1.4x (for 10% ROE), a 12% discount to the five-year median.

Hong Kong equities (HSI index) are down 27% and on trailing PB of 0.7x (for 8% ROE), a 43% discount to the five-year median.

Hong Kong equities among cheapest versus history in large EM, less so in mainland China

Four issues have dragged on the performance of China equities over the last year – our previously published thoughts are accessible via the hyperlinks:

  1. Technology regulation

  2. Zero-Covid policy

  3. Property market distress

  4. US friction over trade, territory (Taiwan), and technology.

China equities summary of top-down positives and risks