Tarun Birani, Founder & CEO of TBNG Capital Advisors, highlights the sheer size of the Chinese economy, which stands at approximately $17.5 trillion compared to India’s $4.5 trillion gross domestic product (GDP).
However, India is currently growing at a faster pace of 6.5-7% annually, whereas China’s growth is estimated at 4.5-5%. Birani emphasises the importance of portfolio diversification, stating, “One needs to have a geographically diversified portfolio, and Chinese markets could be a part of that strategy.”
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Despite potential opportunities, past performance raises concerns. The Hang Seng index has delivered virtually no returns over the last 25 years. However, Chinese stock valuations are currently lower, with price-to-earnings ratios around 13-14 times, compared to emerging market averages of 20-25 times. Dividend yields in China are currently higher than bond yields, making the market attractive for long-term contrarian investors.
While Chinese markets have shown signs of recovery, primarily due to government policy-driven measures such as rate cuts, infrastructure stimulus, and AI and semiconductor investments, risks remain. Birani warns, “Regulatory concerns have been a major issue, as seen with companies like Alibaba, where government actions have wiped out investor returns overnight.”
Geopolitical tensions, particularly between the US and China, continue to pose significant risks. With potential trade tensions escalating under a new US administration, investors should tread carefully.
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Currency depreciation of the Chinese yuan against the Indian rupee or the US dollar could impact returns. The tech sector, especially its dependence on artificial intelligence (AI) and semiconductor exports, remains vulnerable to potential US export bans.
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