China is recovering, but slower than investors hoped: Strategist

As concerns over China's economic trajectory linger, there are signs that a gradual recovery may be underway. KraneShares CIO Brendan Ahern joins Yahoo Finance Live to discuss the outlook for the Chinese market.

Ahern acknowledges that China's economic recovery is progressing at an "incremental" and slow pace. He points out that China's fear of accumulating further debt has prevented it from implementing "major fiscal stimulus." However, he highlights that Chinese consumers are increasing their spending on sectors like restaurants and travel, which he believes "will broaden out to other areas."

Regarding investment opportunities, Ahern suggests that investors can gain exposure to China through "great US multinationals" such as Apple (AAPL) or Starbucks (SBUX). However, for investors seeking to be "explicitly" involved in the Chinese market, he recommends focusing on growth sectors of the economy. These include domestic consumption, clean technology, and semiconductor plays.

Ahern also touches on the real estate sector, which has been weighing heavily on markets and dampening domestic consumption. Despite the pressure on the real estate industry in China, Ahern expresses confidence that the Chinese government "won't allow a financial crisis to occur" stemming from this sector.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

- Put us in perspective, taking a step back and taking a look at the recent data that we've gotten out here from China, it looks like to be stepping in the right direction. How close are we just in terms of really turning a corner and seeing a stronger recovery?

BRENDAN AHERN: Yeah, thanks for the opportunity. And certainly, we're seeing China's economy come back. It's incremental. It's slow. Similar to your previous guest, Mr. Kaplan the former Fed Governor, China's been unwilling to do major fiscal stimulus because they don't want to go in further into debt. They don't want to create inflation. So they're allowing the economy to come back. And what we're seeing from the Q4 earnings thus far is restaurants and travel are where you're seeing the Chinese consumer start to spend more, and we think that will broaden out to other areas like e-commerce, which was quite strong in terms of retail sales. So China's coming back just a little bit slower than maybe investors would like.

- And so for investors that are trying to position their portfolio and looking across international opportunities, how strong is China as a portfolio play? And are there specific sectors within the region that they should be focusing in on?

BRENDAN AHERN: Yeah, I mean, we're all invested in China, either explicitly or implicitly, that you have a lot of China exposure through great US multinationals if it's Apple, Tesla, Starbucks, Boeing.

- Nike.

- A whole host. In terms of explicit where we're really focusing at KraneShares is on the growth segments of China's economy that some of the underperformance of China indices is due to very high weights to financials energy, industrials, materials, and real estate, slow low sector. So at KraneShares, we want to get exposure to growth areas like domestic consumption as it happens online, clean technology, which includes electric vehicles, solar wind, but also technology plays like semiconductors.

- How much, though, some of this optimism being offset by the weakness that we continue to see within the property sector and the fact that continues to shake the confidence, not only obviously of Chinese investors but also just from investor interest on a global scale?

BRENDAN AHERN: Yeah, 100%. I mean, the real estate situation in China is dual faceted. One is the falling of real estate prices has weighed on domestic consumption as urban households have 2/3 of their wealth invested in real estate. So as part of their portfolios declined in value, they've been slower in terms of consumption.

The other side of the equation is distressed real estate players like the Evergrande and Country Gardens, the lack of property projects, which means less construction workers, less demand for cement and steel. And that's why real estate is receiving so much attention from the Chinese government. They won't allow a financial crisis to occur. It's not in their best interest to allow real estate unfold into a crisis, which, again, is why we're seeing so much policy support.