The investment opportunity offered by China
The relationship between the United States and China is perhaps one of the most important in history, and not just because they are the two largest economies in the world.
This economic relationship, which has been strained for some time, has vital geopolitical implications and it is even more so at a time when the world is trying to get past the coronavirus pandemic. The United States and China are proving to be somewhat good at this, but as Chris Dillon, investment specialist in T. Rowe Price’s Multi-Asset division, notes, not all developing economies follow suit. China. This could be a sign for investors to adopt active management when it comes to exposures to both China and emerging markets at large.
“If you look overseas in emerging markets, the segments are much less fortunate there from that point of view. Look at the infrastructure in India, to be able to get the vaccines, but also to distribute them to their people, ”said Dillon. “In Brazil, it’s a similar story. With the inconsistencies in vaccine resources, these countries will be lagging behind now, but the hope is that they will follow suit later with their recovery as vaccines become more widely distributed. “
In T. Rowe Price’s mid-year 2021 market outlook, the fund manager notes that when China joined the World Trade Organization (WTO) Two decades ago, Westerners hoped that the country would become more democratic and increasingly capitalist. As Dillon notes, this did not happen, but strict government control had some advantages in the COVID-19 environment.
“In a managed economy, if the government tells you to go get the vaccine, go nowhere, and put on a mask, then you do it,” he said. “In China, this is not an option. In the United States, you have the choice of getting vaccinated; the government is not going to look for you. Given this structure, as well as the level of their operational sophistication, we are not surprised that China has been able to master COVID-19 as fast as they did.
For investors looking to China now and for the long haul, Dillon adds that it’s important to focus on the country’s efforts to become less dependent on exports and boost high levels of domestic consumption – a hallmark of China. American economy.
“The next phase in China’s evolution is the rise of a consumer-based economy, competing with the United States on the world stage,” he adds. “So not only will there be technological innovation, but there will also be savings in services, health care and financial services. These are examples of areas where there will be a gradual opening up of liquidity.
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