DEER ISLE: Insights, Flows & Investment Trends
China: Time to Invest?
Macro & Policy Backdrop
China’s 10-year bond yields sit near 1.9%, leaving fixed income unattractive and pushing capital toward equities. With banks holding ~90% of financial assets and insurers controlling 10%+ of investable capital, the shift could be substantial.
We have heard from reputable local sources that one top 10 insurer reportedly tried to put $500M+ into global equities, but capital controls forced it into Hong Kong.
A move from bonds to stocks dove tails with Beijing’s strategy of stimulating domestic consumption, to reduce reliance on global consumption for domestic growth, with higher equity prices which creates more household wealth thereby fueling consumption.
Valuation Gap & Strategic Sectors
China trades at an ~ 50% discount to the U.S. — the MSCI China Index is trading at ~14× trailing and ~12× forward earnings vs. the S&P 500 at ~29× and ~21×.
Despite this gap, China is a global leader in high growth areas such as batteries, industrial robotics, and AI which should generate value for equity holders.
In addition, Xi Jinping’s emphasis on domestic growth over geopolitical tension lowers escalation risks and strengthens the investment case.
High-Profile Investor Activity
Big names are starting to lean in. Beeneet Kothari (Tekne Capital, ex-Druckenmiller protégé) posted 22%+ gains in 2024, fueled by Chinese bets in AI, robotics, and enterprise software.
David Tepper (Appaloosa) has upped his China exposure in late 2024, citing single-digit P/Es, double-digit growth, and large cash buffers — even saying he’d “love to see a pullback” to buy more.
—————————
Would you like to reach ~160 trillion of investable assets that invest into debt or equity and that buy companies in a low marginal cost/time manner? If so, contact us and we will help you to do so. info@deerislegroup.com
—————————
Capital Provider Interest: Inbound interest remains strong for stable growth, essential industries — particularly those suited to roll-up strategies. Capital providers are seeking durable opportunities that can scale efficiently.
Growth Buyout: Is the VC model dying? Market commentary says many VC’s have a narrow mindset about successful companies, so Private Equity approach is encroaching and more successful with Series B or later VC companies.
Private Equity: Generalist funds which had limited defense investment due to ESG considerations are changing investment criteria by getting LP approvals to include defense investments. CALSTRS, LACERAs and other government pension funds are leading the way in changing scope
Real Estate: Will the prospect of lower interest rates signal the bottom of the real estate market. There are prime, high occupancy market, class “A”, fully leased rental buildings that are having a difficult time finding capital. These transactions in more normalized markets would be snapped up.
