Opinion | China’s stock market will bounce back in 2022, but expect green energy, not big tech, to lead the way

Regulatory tightening and Covid-19 fears wreaked havoc on China’s stock market in 2021, but increased spending could help it outperform the US this year

While regulations are a long-term win for tech companies, uncertainty in the short term could make stocks in green energy and logistics a safer investment

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Workers work next to solar panels in an integrated power station in Yancheng city, Jiangsu province, on October 14, 2020. Expect companies focusing on emissions reduction, new forms of energy, and providing the infrastructure for new energy facilities to be among the market leaders next year. Photo: AFP

Published: 9:45pm, 16 Jan 2022

After such a strong year in 2020, Chinese stocks had a dismal 2021. Battered by changes in regulations on internet and education companies, as well as the continuing China Evergrande saga and concerns about outbreaks of the coronavirus, the MSCI China Index is now down more than 20 per cent year-to-date and drastically underperforming both major developed and emerging market indices.

Further drops for both old and new economy stocks in China could come yet as these factors continue to play out, with questions around whether China is still investible.

I would argue that such concerns are overblown. Chinese stocks may bottom in the first quarter of 2022, but they could also become some of next year’s biggest winners.

The Chinese government’s regulatory changes did initially dampen consumer confidence. In the height of this news story during the summer, I visited Shanghai and saw that normally bustling shopping malls, housing education centres, retail shops and restaurants were empty, despite the country mostly resuming life as normal.

It is also true that one cannot predict the pace, scale, or even content of the regulatory roll-out, making such abrupt changes very difficult for equity markets to digest.

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