Skip to main content

Choose your location

Current selection

Canada
English
Canada
United States
Asia Regional
Australia
New Zealand
Austria
Belgium
Denmark
Estonia
Finland
France
Germany
Iceland
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom

Download

Audience for the document: Share Class: Language of the document:

Download

Share Class: Language of the document:

Change Details

If you need to change your email address please contact us.
Subscriptions
OK
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest

October 2021 / EMERGING MARKETS

China: Too Big to Ignore

Insights Webinar Summary

The views contained herein are those of the presenters as of the date noted and are subject to change without notice. These views may differ from those of other T. Rowe Price Group companies and/or associates. This material is not intended to be investment advice or a recommendation to take any particular investment action.

Regulatory Actions are Well Intended, and Opportunity Lies in Their Wake

  • Wenli Zheng, portfolio manager of T. Rowe Price's China Evolution Equity Strategy, acknowledged that the recent regulatory actions by the Chinese government had caused concerns among investors. However, he reminded the audience that these actions were part of a long-term plan to ensure a more equitable society, along with a desire to create greater competition and avoid monopolies.
  • In particular, he mentioned the rise of online platforms and the intention for the creation of a more open ecosystem for all online platform providers, as opposed to affording mega-cap tech giants certain implicit protections. This would also help protect relevant stakeholders within the industry who usually have weaker bargaining powers versus these large platforms.
  • In terms of investment implications, Mr. Zheng noted that the Chinese equity market was constantly evolving, citing several major shifts in the MSCI China Index. Twenty years ago, telecommunications firms accounted for over half of the index’s weight, while financials dominated in the 2000’s with nearly 40%. Today, internet companies comprise 40% to 50% of the index as China has evolved and innovated. Mr. Zheng advocated for the approach of seeking out emerging trends, rather than focusing on existing incumbents.
  • He also noted the importance of aligning your investment strategy with the direction of regulatory reform. This is difficult due to a lack of transparency and communication in some areas. The pace of change has also increased. However, Mr. Zheng believes that, on balance, the government’s regulatory agenda is both consistent and well intended. China has over 5,300 stocks in its liquid markets, so there is also plenty of opportunity to invest in other areas not impacted by regulatory change.
  • In Mr. Zheng's view, China remains an attractive market. It provides access to what he believes are some of the best business models and growth opportunities, and can serve as a key source of diversification for global investors. He also believes China's relatively inefficient market may provide active investors the potential for sustainable alpha generation.

China’s Economic Trajectory and Credit Cycle

  • Chris Kushlis, T. Rowe Price’s Chief of China and Emerging Markets Macro Strategy, shared that despite meaningful headline interest in China’s new regulatory policies, he believes the impact to the country’s long-term growth trajectory remains modest. Mr. Kushlis attributed China’s long-term growth prospects to two key structural forces: slowing demographics and its ability to move higher in the global value chain due to productivity gains.
  • While the “demographic dividend” is fading, Mr. Zheng commented that advancements in education and engineering have started to shift China’s competitive advantage away from being a low-cost manufacturer and toward innovation.
  • For fixed income investors, Mr. Kushlis cited China’s current deleveraging campaign as a focus point. China had ridden the credit wave to develop its property sector, but the country’s credit-to-GDP ratio had reached levels that had begun to raise concerns among financial regulators. As a result, regulators have proactively tightened credit facilities to avoid potential financial instability.
  • Overall, Mr. Kushlis believes it is likely that China will need to recalibrate its long-term GDP growth expectations modestly lower: Its previous growth rate of 6% to 8% a year, will likely fall to around a 4% to 5.5% range over the next 10 years.

Investing in China’s Innovation

  • Mr. Zheng encouraged investors to look beyond the Chinese mega-cap companies on the internet and health care sectors to other pockets of the Chinese economy with leading players in rich industries, as well as the rising companies in emerging sectors, such as renewable energy, electric vehicles, and semiconductors.
  • Innovation is a major source of opportunities and wealth creation: If you look at just over the past three years, there has been a USD 2.5 trillion market cap increase from three sectors: internet, biotech, and electric vehicles. But innovation is not just limited to those emerging or new industries. Even in traditional sectors, China is quickly becoming a front-runner in adopting the latest technologies, which allows it to catch up on the value chain and to compete on performance, rather than purely on cost.
  • In the consumer space, two major trends were noted: First, the rise of local domestic brands. Like South Korea and Japan several decades ago, China’s rising middle class is shifting preferences to domestic brands due to the disruptive power of social media and e-commerce. Second, a shift from spending on products to spending on services. Given most Chinese sectors are still highly fragmented, this tailwind provides huge consolidation opportunities for industry leaders in areas such as hotel chains, property service management, drugstores, etc.
  • Long-term drivers for China’s economy include urbanization, infrastructure spending such as investing in the green transition underway, and consumerism with its rising middle class.

Investor Concerns Over ESG Factors, Accounting Practices, and ADRs

  • Mr. Zheng emphasized the country’s meaningful progress toward green transition and underscored its commitment to environmental protection. Fundamentally, he noted that industry leaders which have embraced solid environmental, social, and governance (ESG) practices have emerged stronger.
  • He did concede that Chinese companies can be weaker in terms of ESG disclosure, but many were becoming more receptive to perspectives and feedback from international investors on ESG. Engagement is a key component of his research process and allows him to develop a comprehensive view of companies, including their ESG credentials.
  • In terms of accounting standards, despite some reports of fraudulent activity, Mr. Zheng believes that many Chinese companies have high accounting standards. China's generally accepted accounting principles are aligned with the International Financial Reporting Standards.
  • On the topic of delisting American Depositary Receipts (ADRs), Mr. Zheng regarded this as a low-probability scenario, but not impossible. If this were to happen, Mr. Zheng reminded investors that they would be able to convert their ADR shares into Hong Kong-listed shares.

U.S.-China Geopolitical Tensions Remain Elevated but Stuck in a Holding Pattern

  • The geopolitical landscape has become more complicated and harder to navigate over the last few years, in Mr. Kushlis’s view. Under President Trump, the relationship between the U.S. and China became more contentious. Under President Biden, there are signs that we may be heading toward a more conducive relationship where there is greater competition, but also efforts to avoid conflict.
  • On trade policy, Mr. Kushlis does not believe that there will be major near-term shifts in the next six to twelve months as there is little desire to reduce tariffs by the US. However, he thinks it is likely that country representatives will negotiate over several longer-term trade issues, which should forestall further tariff increases at this time.
  • When asked about the military risks surrounding Taiwan and China, Mr. Kushlis described the risk of a unilateral Chinese action on Taiwan in the next five to ten years as still moderately low. While the Chinese government still seems intent to pursue a peaceful path to unification, the U.S. appears increasingly worried that the military balance is moving against Taiwan. While he believes recent headlines are an attempt to signal redlines around moves toward recognizing Taiwan, he is watching developments closely in the near term.

China’s Currency Position in Foreign Exchange Markets

  • The renminbi (RMB) has outperformed significantly against a number of other currencies, supported by the rise in China's current account surplus over the last 18 months as China became the exporter to the world during the COVID-19 crisis. But Mr. Kushlis believes that we are likely to see some sort of depreciation from here, mainly because of the anticipated slowdown in China’s economy.
  • Long term, there is a push for the RMB to be recognized as a potential reserve currency globally. To foster this goal, Mr. Kushlis believes it will be important for Chinese officials to allow for more volatility in the currency. That means allowing market forces to drive valuations more than they have previously.

Important Information

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc., and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation, or a solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material, and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.

© 2021 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/ or apart, trademarks of T. Rowe Price Group, Inc.

Previous Article

October 2021 / ENVIRONMENTAL, SOCIAL, AND GOVERNANCE

Taking the Temperature on Climate-Related Shareholder Proposals
Next Article

October 2021 / GLOBAL EQUITIES

How ESG Helps Make Us Better Value Investors
202110-1868446

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance is not a reliable indicator of future performance.