China’s growth, which had been the envy of the world for decades, has been sputtering in recent years. China’s debt rose sharply as the government began borrowing money at an alarming rate to finance infrastructure projects and other initiatives to keep its economy humming. For five consecutive years through 2013, China issued net debt that was equivalent to more than 30% of its total economy—helping create an economic environment that reminded some of the subprime credit bubble in the United States.
Investors naturally grew concerned and withdrew money over a period of three years; Chinese stocks, as a group, underperformed the broader emerging market index over the past five years.
But has enough changed to put Chinese equities back on the right track?
We believe it has—enough that investors might want to reconsider China as an attractive investment opportunity.