Concerns have focused on countries with current account deficits and large US dollar liabilities. But some people have also started to question China’s ability to maintain its growth trajectory.
Investors need to be careful not to tar all emerging markets with the same brush. A number of countries urgently need structural reform, but for others – including China – recent market turbulence is likely to prove just a temporary wobble. China's economic fundamentals remain strong, while the Beijing authorities appear determined to correct imbalances – for example, by addressing the overhang of local government debt.
We expect China to grow by 7 to 7.5 per cent in 2014, broadly in line with the government's GDP growth target of 7.5 per cent.
Some experts think it will beat it by a distance: seasoned China-watcher Jun Ma, Deutsche Bank's chief economist for the country, forecasts growth of 8.6 per cent this year and 8.2 per cent in 2015.
The latest comments from Chinese officials have been reassuring. President Xi Jinping has indicated a future policy path aimed at slower but sustained growth, underpinned by the consumer sector.
The reform agenda looks similarly encouraging: at a recent conference held by Deutsche Bank, 14 prominent government officials and policy advisers presented a wide-ranging programme of planned reforms, including initiatives to encourage entrepreneurship and innovation.
Overall, we think China remains an attractive destination for investment capital. But how best to access the opportunity?
One option is to invest in Hong Kong, where some of China’s bigger corporations and commodities companies are listed – and which is relatively easy for non-Chinese investors to access.
However, for those looking to tap into the consumer consumption story, investing directly in mainland China gives better exposure to companies with a consumer and domestic focus.
Performance of indices over 5yrs
Source: FE Analytics
Investors need to be aware that mainland markets can be volatile. Moreover, direct investment is currently limited to qualified foreign investors under the QFII and RQFII programmes.
The QFII programme – launched in 2002 – was for a decade the only channel available to asset owners such as pension funds and insurance companies looking to buy and sell yuan-denominated A Shares and bonds in the Shanghai and Shenzhen exchanges.
The more recent RQFII scheme allows investors to participate in local markets through renminbi obtained offshore.
Both schemes are subject to caps on foreign ownership of an individual stock and overall foreign investment in a Chinese company.
The good news for non-domestic investors is that there is a growing range of active and passive retail investment products that offer exposure to China's economy – including increasingly to its consumer sectors.
What is more, there are signs that restrictions on non-domestic investors will be relaxed in the future.
At the same time, the strength of the renminbi has created a number of attractive fixed income options; supported by China’s vast reserves, the renminbi is poised to become an important global currency.
By degrees, China is opening its investment markets to the world. While many international investors are indiscriminately fleeing emerging economies, those with a longer-term focus may want to consider accepting China's invitation.
Deutsche Asset & Wealth Management launched Europe’s first direct investment China A-Shares ETF tracking the CSI300 index in January 2014.
