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BlackRock retains confidence in China despite recent clampdowns

China will keep its hawkish stance over the medium-term in order to protect the quality of growth

China is set to release key economic data, including its GDP figures and inflation, which will give investors a better idea of where the world’s second largest economy stands.

Analysts have suggested that the its growth could reach 8% during Q2 year-on-year, as it kept the spread of Covid mostly under control, while demand from elsewhere held steady.

The CCP has also made efforts to support businesses, in addition to its strong policies aimed at keeping the virus under wraps.

As a result, China’s economy has weathered the pandemic and come out the other side ahead of its peers.

“China is already a distinct pole of global growth,” said BlackRock in its mid-year outlook. The world’s largest asset manager added that now is the right time to treat country as an investment destination separate from emerging markets and developed markets.

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BlackRock also believes that Chinese authorities will begin to loosen their policies as growth begins to slow, adding that the country will keep its hawkish stance over the medium-term in order to protect the quality of growth.

China’s clampdown on a number of private industries remains an issue, especially for those investing in Chinese stocks. Tencent was the latest stock to fall as the gaming sector recently came under pressure from the authorities in China.

“We believe the clampdown on some private industries could go on for years, but its intensity would likely fluctuate,” said BlackRock. “We have yet to see the peak of the regulatory campaign, but could see its pace and intensity moderate amid slower growth.”

BlackRock advised investors to be aware of ongoing tensions, but added that its neutral allocation to Chinese assets is multiples larger than typical benchmark weights.

The MSCI China 10/40 Index, designed to measure the performance of large and mid cap representation across China, added 4.55% over the past year. This follows the recent sell-off of Chinese stocks, causing the index’s value to lose 13.50%.

The top constituents of the MSCI China 10/40 Index are Alibaba (8.83%), Tencent Holdings (8.21%) and Meituan (4.6%).

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