Executive Summary • China’s comprehensive reform plan could create higher-quality, more sustainable growth, reducing uncertainty for investors. The main drivers for
optimism are the potential impacts on the nancial sector and consumer
• Financials could experience improved prots and a reduced risk prole,
despite concerns to the contrary. The reforms could open up new business
opportunities for banks and shore up the health of local government borrowers, a key client.
• Consumer spending might receive a boost. The reforms to rural land rights and the household registration system could improve incomes as well as propel the next stage of urbanization and productivity gains in China. Additionally, the loosening of the one-child policy could provide a minor lift to consumption.
• Chinese stocks currently trade at a signicant valuation discount to both their historical average and the broader emerging market equity universe.
Patient investors who can endure volatility can use periods of uncertainty as potential buying opportunities.
• We believe risk-tolerant investors should overweight China’s stock market within their allocation to emerging market stocks. We advise that investors
consider mutual funds and exchange traded funds (ETFs) that invest in large-
capitalization Chinese stocks, which could benet over the next year or so
because of their discounted valuations.