The Case for Investing in China

China merits selective investment because its unusually low equity valuations coexist with faster per-capita growth and globally competitive companies, despite substantial political and geopolitical risks.

• Goldman Sachs data show Chinese equities trading at roughly half the P/E multiple of U.S. equities; MSCI China trades at about 1.5x book value, versus 2.0x for emerging markets and more than 5x in the U.S.
• The author acknowledges that he previously avoided China because he expected its financial sector to implode, but changed his view after recognising that totalitarian regimes have different policy tools from democracies; he still advises avoiding Chinese property stocks and remains negative on the financial sector.
• China’s high household saving rate reflects weak confidence in government support during retirement, but it also means investors should favour companies capable of growing internationally rather than relying solely on domestic demand.
• Using population-weighted comparisons from Goldman Sachs, the author argues that China’s real GDP per capita has converged faster than that of other large emerging-market countries since 1980, while China’s 1.4 billion people make its contribution to regional growth especially significant.
• Geopolitical risks, including import tariffs, export restrictions and sanctions under the Trump administration, may justify a valuation discount; however, the author questions whether a 50% discount is warranted and argues that faster economic and corporate-earnings growth could still produce better returns than U.S. investments.

Takeaway: Investors should not dismiss China as an investable market, but should treat it as a selective, internationally oriented equity opportunity, avoiding property and financial stocks and demanding compensation for regulatory and geopolitical risk.