China Dreaming of High-Income Status... Must Carefully Examine Public Offering Funds

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[Asia Economy Reporter Junho Hwang] China has set its economic direction toward becoming a high-income country, moving beyond the middle-income trap. It newly proposed a dual circulation economic strategy prioritizing internal circulation while concurrently engaging in international circulation, with key development directions including consumption promotion, scientific and technological independence, and industrial upgrading. NH Investment & Securities forecasted on the 20th that considering China's political, economic, and policy directions, investors should pay close attention to public funds related to middle-class expansion, wellness, and becoming a science and technology powerhouse.

First, regarding real estate investment in China, it is expected that households will find it difficult to generate profits through real estate investment due to government market controls. According to asset management measures scheduled to be implemented in 2022, the risk of principal loss in trust and bank wealth management products is also increasing. The scale of bank structured deposits and internet deposit products is decreasing, and the investment attractiveness of other financial products is also on a downward trend. Additionally, due to institutional factors in the Chinese stock market and the emergence of several star managers, household assets are flowing into the public fund market.

With the expansion of the Chinese public fund market in 2019, large-cap stocks have shown relatively stronger performance compared to small and mid-cap stocks. As the proportion of institutional investors increases, the importance of the CSI300, a major benchmark for asset management companies, is expected to grow further. In particular, since consumption promotion, scientific and technological independence, and industrial upgrading are key development directions for China, there is a high possibility that long-term themes preferred by institutional investors will be formed. NH Investment & Securities explained that middle-class expansion, wellness, and becoming a science and technology powerhouse will be such themes in China going forward.

Among the stock groups related to long-term themes preferred by Chinese institutional investors, stocks related to middle-class expansion include Guizhou Moutai, Oranac, China National Petroleum, Midea Group, Luzhou Laojiao, Great Wall Motors, Qingdao Haier, Fuyouri, and Gree Electric Appliances. Stocks related to wellness, which encompasses domestic demand, people's livelihood, nationwide unification of social insurance systems, and increased social welfare budgets, include Wuxi App Tec, Aian, Wantai, and Gan & Lee Pharma. Stocks related to becoming a science and technology powerhouse include iQiyi, Wanhua Chemical, Lishen Precision, and Yongyou Network.

Park In-geum, a researcher in global strategy at NH Investment & Securities, said, "South Korea also experienced a large-cap stock market driven by the expansion of institutional investors due to the growth and diversification of public equity funds in the 2000s, and the formation of long-term themes in preferred sectors and stock groups by investment trusts. The United States had a similar experience in the mid-1960s to 1970s," adding, "Equity funds and pension funds incorporated these stocks heavily into their portfolios, creating a stock price surge close to a bubble."

This content was produced with the assistance of AI translation services.