Investors eyeing China’s stocks must remember importance of diversification

As China’s stock market hit its highest level since the global financial crash in 2008 and its economic recovery gathers pace, investors will continue to pile into Chinese equities this year.

The CSI 300 index, which tracks shares on the Shanghai and Shenzhen stock exchanges, closed up 1.9% on Tuesday at 5,368 points – the highest level seen since January 2008.

These extraordinary gains for Chinese equities following an impressive 2020 in which the index added over 27%, will likely continue this year as investors seek growth.

Compared to other major economies around the world, China’s rebound is somewhat remarkable.

As other countries are imposing heightened restrictions to curb mounting coronavirus infection numbers, China reported rising industrial output and retail sales at the end of last year, fuelling the country’s stock markets and currency, as well as economies that are boosted from domestic spending within China.

Naturally, this will not pass investors by who are looking for yield.

Nevertheless, and as I was quoted by The Guardian, although China’s economic recovery will likely gain momentum, last year showed us that things can change overnight, and so-called certainties can shift in the blink of an eye.

As such, investors must ensure they have a truly diversified portfolio, across geographical regions, assets classes, sectors and currencies.

A fund manager who seeks global exposure and opportunities in Asia, particularly China, will best place investors to reap rewards this year.

Indeed, China, and Asia in general, has huge potential and, in all likelihood, will surpass the rest of the world in 2021.

That said, investors must remember the significance of diversification, their best tool to make the most of the opportunities and avoid the risks. 

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