Today, the most unloved geographic asset class is arguably China. This stems from a combination of geopolitical pressure (largely spearheaded by the US), China’s harsh lockdown and regulatory changes imposed on its private sector, its real estate crisis, private sector debt defaults, slow growth and slumping stock markets since 2021.

From a contrarian lens, this is what makes China attractive. Over the past five years, the country’s industrial production surpassed that of the US, Germany and Japan combined. China has leapfrogged across sectors including battery and energy storage, climate change solutions, automotives and electric vehicles, edge applications and devices, and robotics in manufacturing. Meanwhile, China is generating record surpluses, and many large companies have built strong and defendable moats globally via their advanced technology over the past five years.

Significant market forces have shaped China’s sectors, e.g., bankruptcies of weak or leveraged players. Today there are plenty of firms selling at bargain levels that have robust operations and are poised to grab market share. Never before have we seen so many companies that are large and yet entrepreneurial, that are generating free cash and starting to return capital to shareholders – and yet remain so cheap. 

We believe investors are missing a few things, namely China’s significant tech advancement, its trade growth with the ‘global south’, the continued liberalisation of its capital markets, its large savings pool waiting to be tapped and the collective will of the country to succeed. 

An early investor who buys an asset at 50 that heads to 100 makes a 100% return; another who buys the same thing at 75 only makes 33%. Being contrarian helps.