Fisher Investments Founder, Ken Fisher, Reviews His Outlook on China

Transcript

Ken Fisher:

A big discussion point in 2023 has been as China unlocked from their last round of Covid, the economy didn't bounce back the way people thought it would. It's still growing based on official Chinese numbers, but at a 5% kind of level.

The stock market, meanwhile, over the last couple of years in China has fallen in half and is significantly smaller than it used to be. The question people worry about, is China on the verge of a decimation, an implosion? Is that going to take down the world or is this the time to buy Chinese stocks with them down 50%? And I would say neither.

The fact is you can look at this many ways. And if you take the longer view, which I encourage you to take, I believe China is something that is not really well understood and thought of today. Because China had so much success for so long and you do have to admire that in what they accomplished, with high growth rates for a very long period of time.

Becoming the second largest economy in the world. And becoming what seen as an existential threat or potentially existential threat to the United States and the Western world.

There's just a lot more geopolitical tensions, as you know very well about that stanine trade off between China, the US and the West. I might be wrong about this, but I believe China is in its descendancy, no longer in its ascendancy.

And it just hasn't come to recognize that a little bit like the dinosaur that gets hit on the tail supposedly legendarily doesn't feel it for a while. The function of China can best be seen through the lens of capital markets. The stock market is a pre-pricer of the future. And in fact, all capital markets are pre-pricers of the future, just each of them a little differently. And in that, I encourage you to take a look at this.

If you look at the Chinese stock market, where it is about now, give or take a little. It's where it was 11, 12 years ago as President Xi came to power. No higher, no lower around a little volatility bouncing. The fact of the matter is, in the post Covid bull market, initially it ran up. It's given that back and a little more.

But the level that it's at, if you just look at the longer term of about the last 12 years, is basically flat as a pancake, with volatility in between. You can see this by going to almost any of the financial online easy-to-access websites that have pricing for securities. You can see this at something like Yahoo Finance or CNBC's website.

And I encourage you to do this because when you see that and you compare them to the Western world stock markets, you realize the stock market is telling you something.

Then go and compare this year in 2023 we've had a lot of concern about the US bank stocks, Silicon Valley bank and bank failures, and you've heard a lot about that early in the year, around March and April and May. Compare US bank stocks to Chinese bank stocks over that longer term and it's telling you. We've had a lot of discussion about artificial intelligence and its role or not. Compare Chinese semiconductor stocks over the longer term to US and Western semiconductor stocks.

And by that I don't mean to include Taiwan, because Taiwan is part of the Western semiconductor world, not part of the Chinese semiconductor world. Make that comparison and the markets telling you something. It's telling you that Chinese capitalism isn't really robust. They aren't innovating. They aren't doing the never-yet-done things that change all things in the material and economic world.

They're playing copycat and it's in some ways a replica going back to that time period of what happened to Japan starting about 1990. A little different, but similar.

In that, I want you to see that China really did well starting out of the period of Deng Xiaoping's opening up of the Chinese economy followed by Communist Chinese Party CCP leader Jiang's leadership, which was also a long period of furthering what Deng Xiaoping had been doing to open up the economy. When Hu (Jintao) became leader you started to get a period where we didn't get more open, but we didn't close down. When President Xi took over, you get a clamping down of freedom of the capitalistic system in China and with that stagnancy. The growth would continue because of the prior momentum, but I don't see China having the robust future. 5% growth is good.

But at their size now, keeping that up is tough to do if you don't let the capitalistic system run pretty wild. When I say pretty wild—relative freedom of capitalism like we have in America. The fact is China's lagging, in these ways, America by a lot. Particularly all the features that relate to innovation. But it's also lacking Europe and it's lagging the rest of the Western world.

It's at this point lagging Japan. And I think it is also true that the Chinese market has never much correlated in the short-term with the Western market. And so the question of is this the time to buy for a bounce is very difficult to discern. But I discourage you from thinking the way so many people think that China continues on this super ascendancy. I don't think it's the economic threat to the US that people think it is. I think they have a very tough time ahead.

Unless something changes in their culture that either has President Xi change his thinking and reopen up systems in China as opposed to tempering them down. Or there becomes a new CCP leader that takes China in that direction.

So I encourage you not to think of China as either a boom or bust phenomena, but to think of it as something that had a long spurt of growth successfully and has now reached the culmination of that. And relative to innovation to the future and the development and material benefits that come with that innovation of the future is playing copycat and is in its slow descendancy and therefore less to be feared than people think.

Thank you for listening to me.