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  • Christian Armbruester

Red Dragon

I remember when a chicken restaurant franchise went public. The analysts pushing the stock told us not to worry about the somewhat lofty valuation. Just think about a billion Chinese people eating one more chicken per week. Those were the nineties, when most forward projections had at their core that magical place where the economy was growing by more than seven per cent a year.

Not anymore, and the one child policy of decades past to curb the large population has done its job. By the end of this century, China is expected to nearly half its current number of people. Growth has slowed and not entirely unsurprisingly, there is a housing bubble that is deflating at the pace of a slow-motion train wreck. Is this the end of the red dragon and what are we as investors to do?

China may be slowing down, but it still packs a mighty punch. The second largest economy in the world sits at the very core of Asia, which today accounts for 39% of global GDP, and growing. In the age of AI and robotics, it is also difficult to see how the size of the population should continue to solely dictate the fortunes of a country’s prosperity.

There is also a highly advanced technology sector that dominates some of the fastest growing markets, and which Western competitors cannot enter. Yet the likes of Huawei, Alibaba, and Tencent are much cheaper than their lofty American peers. With the general stock market still down more than 40% from its highs, having some exposure may not be such a bad thing.


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