China’s reforms will be the key factor to watch for the country’s equity markets over the medium term. Chinese markets still offer many good opportunities, and those will only improve as these reforms begin to pay off, writes Helen Zhu, head of China Equities at BlackRock, Inc., in a report.
Two key upcoming meetings will provide an opportunity to see if China is on track with its reforms and internationalization goals.
China’s fourth plenum session is to focus on anti-corruption and economic development. Investors will be watching for updates on deregulation, improved social safety nets and fiscal reforms.
Meanwhile, while the Asia-Pacific Economic Cooperation (APEC) summit will not have direct economic impacts, it will offer a glimpse at China’s evolving regional alliances and political positioning.
Blackrock expects the meetings to confirm that China continues to make steady, cautious economic progress under diligent leadership. While there have been some disappointments over reforms such as the redesign of the Hukou, or household-registration system, long-term reforms are generally progressing as expected.
This bodes particularly well for the energy and telecommunication sectors, says Zhu.
State energy companies are being forced to adopt market pricing and target their capital expenditures more effectively. Telecommunications companies likewise are reducing their subsidies, resulting in greater profit potential in the future.
Other opportunities include government holding companies, which are becoming more market oriented, and industrials, which will see renewed profit opportunities in the near term.
Sectors that are directly aligned with government reform programs and can benefit from a cyclical bounce, such as renewable energy, are in good position for long-term growth, according to the report.
While recent economic reports have sparked some concerns over the slowing pace of growth, BlackRock still believes policy makers have enough tools at hand to keep growth at a healthy level, although it will be at more moderate levels than investors are accustomed to.