Stock market 'safe haven' for investors

China's growth potential, which is unparalleled worldwide and which is mainly propelled by improved tech competency, is the major reason why APS Asset Management has decided to go "all in on China", the company's top executive said.

Wong Kok Hoi, founder and executive chairman, made the remarks on Feb 10, when the Singaporean asset manager announced its donation to the CEIBS-APS Center for Financial Markets that was officially launched in Shanghai.

The newly unveiled facility serves the company's purpose of providing international investors "a much better understanding of China's current and future financial markets", which deserve right allocation, especially given the high probability of China becoming the world's largest economy by around 2030, Wong said.

A-share companies are likely to register double-digit profit growth on average this year, which will be a major driver for the benchmark indexes. While the low base last year may be one reason, the robust performance in advanced technology sectors such as semiconductors, artificial intelligence and biomedicine will be key for the higher profits, Wong added.

Market liquidity is ample. China now has $22 trillion in household savings in bank deposits, which even exceeds the country's GDP. The average stock dividend yield in the Chinese market is around 3.5 percent, which is more than three times higher than bank deposit rates. While Chinese investors are relatively cautious at present, more household savings will be directed to the stock market under government guidance, which in turn will bolster its performance, he said.

Although the A-share market rebounded last year, it is still far from its peak in 2021, pointing to room for further recovery. The valuation of Chinese equities is lower than international peers. As the Chinese market continues to outperform the US and European markets, international investors are likely to increase their exposure to Chinese equities so that they can beat the benchmark, said Wong.

While the Chinese financial market is not as advanced as the manufacturing industry in terms of mechanism, product supply and internationalization, its lower correlation to other markets becomes a competitive edge for risk diversification amid rising global uncertainties. The Chinese capital market can thus be deemed as a "safe haven" for international investors, he added.

According to Wong, China's capital market has reached a high level of opening-up, but the country still needs its currency to be compatible with its economic size. Regulators should step up their dialogue with global investors to narrow the perception gap that has discouraged chief investment officers and investment committees from making the right allocations to China.

Wong did not overlook the pressure facing the property market and consumption sector in China in recent years. But he believes these are cyclical adjustments rather than structural issues. In light of China's well-established industrial foundation, a large pool of engineers and massive market size, the country's long-term growth logic remains unchanged. On top of that, the application of AI will empower various industries, helping to further improve profitability, according to Wong.

Speaking of the market concerns of an AI bubble, Wong said large language model companies and data centers may mainly face such risks as they are heavily reliant on continued financing. As the development costs of AI applications are relatively low, there is no imminent risk for these companies, and most Chinese AI companies have much strength in this area. Chipmakers will face hardly any risk at present, as they are the definite beneficiaries of the current soaring demand for AI computing power all over the world, he added.