China’s Reforms Open New Path to Equities

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China’s Reforms Open New Path to Equities

China’s Reforms Open New Path to Equities by Stuart Rae, AllianceBernstein.

For investors in China equities, there have traditionally been two ways of approaching the market: through expensive growth stocks, or risky contrarian plays. Now, thanks to China’s reforms, there’s a third way which may offer a better balance of risk and return.

Despite the headlines about slower growth, credit tightening and the potential for corporate defaults in China, the country’s medium- and long-term prospects continue to interest investors. One reason for this is that opportunities to gain access to Chinese equities are increasing—helped, for example, by the government’s allocation of licenses and quotas under the Renminbi Qualified Foreign Institutional Investor program, and the impending launch of the Shanghai-Hong Kong Stock Connect program.

Moving Beyond High-Growth Stocks

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The range of strategic approaches open to investors is broadening too, enabled by changes in the economic and financial environment. Traditionally, investors in China have focused on either growth or contrarian plays, or a combination of the two. Even now, it’s possible to