Our global markets special report continues with a look opportunities and risks in the world’s second largest economy.
For equity investors, the payoff from China’s remarkable growth over the past few decades has been nothing short of a disappointment. Since 2000, China’s GDP has grown by a factor of about 16 (in U.S. dollars), but the MSCI China Index has risen by only about 280 per cent. (The S&P 500 has risen by about 425 per cent over the same time frame.) And over the past five years, Chinese stocks have fallen even further behind other global markets.
The potential silver lining, presumably, is that China stock valuations remain relatively low. So, is now the time for investors to reconsider the market?
“We are, I would say, cautiously optimistic on Chinese equities,” says Chris Knapp, managing director and portfolio manager of emerging markets equities at Jarislowsky Fraser Institutional, based in Montreal.
Knapp acknowledges that the MSCI China Index has performed poorly over the past five years. (It has declined by more than 20 per cent since October 2021, despite a rebound in 2025.) Meanwhile, other global benchmarks have delivered considerably stronger returns; the S&P 500, for example, has gained more than 65 per cent over the same time frame.
In 2021, there was a major correction to China’s property market after the country built too many apartments to satisfy the growth and demand in the economy. Property prices began declining across much of China, which was a problem because Chinese households hold a significant portion of their wealth in real estate. That has led to weak consumer demand and structural weakness within the economy, Knapp says.
The country has also experienced weak corporate earnings growth and declining stock valuations. Although the property market correction is ongoing, Knapp believes much of the decline in stock valuations has already occurred.
Arup Datta, head of Mackenzie Investments’ global quantitative equity team, based in Boston, notes that China has been one of the weaker performers in emerging markets. “The reason to own China is that it’s cheap,” he says. “It hasn’t done well.”
But that could also could provide an opportunity for Chinese equities to recover. And as China and the U.S. compete for supremacy in the era of artificial intelligence, the former might also be a way for investors to hedge their bets, Datta suggests.
“My view is China is the one real offset to the U.S. in terms of technology leadership and so on,” he says.
It begs the question of whether the Chinese market is getting credit for that potential, he adds. And it’s why he thinks some allocation is warranted.
Where are the opportunities?
Knapp also sees potential in the technology sector, particularly Chinese Internet companies, as many have built strong franchises in social media, gaming or e-commerce.
“There are really interesting cloud businesses that are inside companies like Alibaba,” he says, referring to the Chinese multinational technology company. “We think all of these have pretty interesting growth and return profiles, and frankly they trade at pretty big discounts to what you see with a lot of the global peers.”
He says many trade at forward multiples of 11 to 13 times, despite historically delivering double-digit growth and returning capital to shareholders. “We think that they’re long-term beneficiaries of AI usage and AI adoption,” he adds.
In addition to technology, Knapp sees promise in Chinese companies on the industrial and manufacturing side that have built global leadership.
“We see a lot of these pockets where you have Chinese companies that have really built leadership, that have really strong fundamentals, that have outstanding returns on capital within their business,” he says. “They’re growing at healthy rates, they’re paying nice dividends, and we think they trade at very meaningful discounts to what you see with a lot of global peers.”
He’s observing this in heating, ventilation and air conditioning equipment, battery production for electric vehicles and energy storage, as well the industrial automation segment.
Where should investors exercise caution?
Knapp says that in China, there’s a slightly higher level of regulatory and geopolitical risk than in most markets, so investors do have to be relatively careful.
Risks around government intervention can be a concern, particularly when looking back at 2021 and 2022, when there was significant intervention in industries such as education, fintech and e-commerce. That included restrictions on for-profit tutoring and tighter regulations of technology companies.
Tariffs and trade policy tensions can also impact Chinese-owned companies. Another concern is that there has been “significant over-investment” in certain industries, like solar panels and electric vehicles, Knapp says.
Typically, when industries go through a cycle of investment followed by overcapacity, they can experience a period of consolidation—during which investors can get burned.
What’s the easiest way to gain exposure?
The market has become more and more accessible over time, Knapp says.
Canadian investors can buy shares in Chinese companies listed on the Hong Kong Stock Exchange through brokerages that offer international trading, he explains. Investors can also gain exposure to Chinese companies through American depositary receipts (ADRs), which trade on U.S. exchanges.
Investors can also access eligible Chinese A-shares listed on the Shanghai and Shenzhen stock exchanges through Hong Kong’s Stock Connect program, although they need a broker and custodian that has the capabilities to do so. There’s also a whole host of China-focused ETFs and funds available in Canada and the U.S.
Large family offices can also look up investment managers offering China strategies, but Datta says he doesn’t see much demand due to the market’s poor performance. He has, however, seen strong demand for emerging market strategies generally, with market gains led by South Korea and Taiwan over the past 21 months.
Still, China is the second largest economy in the world, and it doesn’t seem like much of that is reflected in the stock market, he points out.
“At the very least,” Datta says, “maybe at least putting a toe in there with some allocation makes sense to me.”
Leah Golob is a Toronto-based freelance journalist covering business, personal finance and consumer issues. Her work has appeared in The Globe and Mail, The Toronto Star, the Canadian Press, The Logic and Yahoo Finance Canada. She has been recognized with awards from the Portfolio Management Association of Canada (PMAC) and the Society for Advancing Business Editing and Writing (SABEW Canada).
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