Investors should look to China as the 'next positive catalyst for 2022'

Investors should look to China as the next positive catalyst as 2022 unfolds, Brent Joyce, Mackenzie Investments’ Investment Strategist told Wealth Professional.

“China is the second largest economy on the planet, the second largest stock market, and the second largest bond market,” he said. “So, it is a big part of the global puzzle in a global picture.

The Chinese business cycle is somewhat asynchronous to the rest of the global economy, and that is a positive thing for us as investors, if we envision a world in 2022, where – by the time summer rolls around – many of the positives that we’re expecting are either fully priced into the market or they’ve had some time to work their way through. Investors in the markets will then be looking to the next positive catalyst. If we now have had the spending in the supply chains untangled and the inventory cycle is running its course, they’ll need something to look forward to, and we think that the Chinese economy is posed.”

Joyce believed the Chinese authorities had just affirmed that with their Politburo meeting and central bank policy change in early December.

While he said 2021 was a “year of tightening and regulation”, when China indicated it wanted to rein in capitalism that was getting ahead of itself and felt it needed to deleverage the real estate sector, it looks like it will relax a bit in 2022 as its December statement indicated it wanted much more stability.

“That signals that they’re not finished their reform agenda, but it may be on equal footing with growth,” said Joyce, “and that growth is now back in as an important driver for the Chinese economy in 2022.”

Joyce is also optimistic about that, given that China will host Winter Olympics and also hold its 20th national party congress to do its five-year leadership review this year, so “there are lots of reasons why you would expect that they will start to stimulate the economy.”

All of this provides Canadians with the opportunity to invest directly in the Chinese capital markets, and Mackenzie has some premier products for that.

 But, given the headwind that China’s tightening created in the global economy in 2021, Joyce is optimistic about 2022. 

“When you look at the emerging market equities, China’s equities were down on the year for 2021. It’s one of the few blemishes when you look across the global stock market,” he said. “So, we think that headwind will turn into a tailwind in 2022, and that will be an area that’s not a drag on portfolios, but a positive contributor to clients who have exposure, not only directly to China, but to all the exporters around the world that are a big part of what we want to invest in in multinational firms in the cap stock market.”