The reopening of China has reawakened a broader interest in foreign investing, and strategists expect it to deliver rewards to investors in its own markets and beyond this year. Strategists see China's markets easily scoring double-digit gains this year. Hong Kong's Hang Seng index is up just under 10% year-to-date while mainland markets, like Shanghai , are up about half that. But strategists also caution that the China story may not end up being all that is hoped for because of the continued spread of Covid and the difficulties of re-engaging the economy with the globe. "My view remains that China is a trade, rather than an investment," said Jimmy Chang, chief investment officer for Rockefeller Global Family Office. "It's not surprising more people are warming up to China, given there's a concern about a potential recession here in the U.S. People want to find positive catalysts around the globe." The case for investing outside the U.S. is strong, particularly with the dollar coming off its highs and looking at further downside. The iShares MSCI Emerging Markets ETF, which includes Chinese companies, is up 8.5% year-to-date, while the S & P 500 is up just under 2% in early 2023. .SPX EEM 3M line us v eem "On a 12-month forward looking basis, international markets are currently trading at a 29% valuation discount to their U.S. counterpart — the widest level in more than 15 years," said Ben Kirby, co-head investments at Thornburg Investment Management. "For long-term investors, we recommend taking advantage of currently cheap valuations and diversifying portfolios outside of the U.S." China, U.S. relations are warming The abrupt turnaround in China's zero-Covid policy since late last year sent ripples across global markets. Strategists expected trade opportunities to improve and spill over to countries, like Germany, Japan and some emerging markets. The major policy shift also comes as China's leadership is showing signs of warming to the U.S. For instance, Chinese Vice Premier Liu He spoke at the World Economic Forum in Davos this week and met separately with U.S. Treasury Secretary Janet Yellen . A further meeting was promised. Ed Mills, Washington policy strategist at Raymond James, said the goal of improving relations between the U.S. and China has been clear since the G-20 meeting in July. Secretary of State Antony Blinken reportedly will visit Beijing and meet with his counterpart Chinese Foreign Minister Qin Gang Feb. 5 and 6. "What we have seen is a lot of the hard work is done at the principal's level below Xi and Biden," he said. Mills said Chinese President Xi Jinping and President Joe Biden could meet in the fourth quarter. Beyond trade, relations between China and the U.S. were particularly prickly as former House Speaker Nancy Pelosi visited Taiwan in August. China had warned her not to visit. There also were new bans on Taiwanese goods and military exercises were carried out near Taiwan. China has said Taiwan is part of greater China, and the U.S. has repeatedly warned it against annexing the country. "Some of the tensions have cooled. The question is: does it get further relief from here or does it heat back up," said Mills. "I don't think we have an answer to that yet." The China Ministry of Commerce said Liu and Yellen discussed U.S. economic and tech policy. Last fall, the U.S. put curbs on U.S. companies and individuals working with Chinese partners on high-end semiconductors. That action came after the Trump administration put specific restrictions on SMIC and Huawei. Also, Trump administration tariffs on many Chinese goods are still standing. Reopening is a turning point China's reemergence after lockdowns could spur more trade and economic activity across the globe. It will also create more demand within China. Strategists point to the prospect for other countries in the region that trade with China to benefit, including Korea and Australia. "While China's reopening is undoubtedly a turning point, there remain reasons to be cautious," wrote Barclays equity strategists. "Zero-COVID was only one of a host of challenges facing China's growth prospects in 2023, which still include a deepening property market contraction, slowing exports and US semiconductor restrictions. Reopening begins to clear the pathway for Chinese consumption to recover, but more than 60% of household wealth remains tied up in a weakening housing market." But still the prospects for China's economy are much brighter than they were just several months ago. After macro tightening and regulatory crackdowns in 2021, the government is now stimulating the economy. Economists have been raising their growth forecasts for the Chinese economy after the country ended the zero-Covid policy, with a Bloomberg consensus now at 5.1% for gross domestic product growth in 2023. The economy grew at 2.9% year-over-year in the fourth quarter. MCHI 1Y line msci Citigroup economists said there have been some upside surprises in the economy, including recent data on retail sales and the labor market. The earlier-than-expected reopening could mean a quicker rebound, and they say their own forecast for 5.3% year-over-year growth in 2023 could end up being too low. Citigroup has an overweight on China. "If it essentially has a significant rebound in profits in the beginning of a new cycle, we could easily see 20% gains in China this year," said Steven Wieting, chief investment strategist and chief economist at Citi Private Bank, referring to MSCI China. The iShares MSCI China ETF is already up 12.4% year-to-date, but is off its highs of earlier this month. KraneShares CSI China Internet ETF is up 12.6% for the year so far, while iShares China Large-Cap ETF is up 12.2%. KWEB 1Y line chinese internet Wieting said even as Covid is spreading at a rapid clip through the country, he expects China to remain open and continue to push forward. "China can't lock down again," he said. He noted the country faced internal pressures from citizens protesting the restrictions. "China saw lockdowns created larger issues for health and economic activity in the country than allowing the spread of what they believe is a less fatal version of the virus," he said. "With high communicability, it's not something you can easily put back in the bottle." Where to place bets Wieiting said U.S. investors can invest in China through its biggest companies. Some of those are the top holdings the iShares Emerging Markets ETF . For example, Tencent Holdings, Alibaba and Meituan are among its top five holdings. Earlier this week, Goldman Sachs said the best way to play the rebound in China is by betting on the Chinese consumer through e-commerce giant Alibaba. The stock is up 31% since the start of the year. BABA 1Y line baba Wieting said he has been actively looking for opportunities in global markets, as a way to diversify outside the U.S., but some investors are newly attracted to overseas opportunities as the U.S. market looks set to underperform. Another way to play China is through U.S. companies that do business there. Coca-Cola's CEO James Quincey, for instance, told CNBC this week that the end of lockdowns is good for business. "What matters to our business is the mobility of consumers in the country. Obviously there's an increase in mobility so that's going to be good for us," he said. "The trajectory of the reopening I'm sure will be very much like the U.S. and the European." The Barclays equity strategists said the reopening of China should have just limited impact on the U.S. market. While the S & P's international revenue exposure is 30%, they have found that just 2% of that is direct revenue exposure to China. Among the companies Barclays identified with exposure to China include Las Vegas Sands , Starbucks, Western Digital , Borgwarner and Tesla. Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, said he still prefers the U.S. but he's looking at other markets. "What we like to tell conservative investors in particular is look for multinationals that have exposure to China. If they are operating there, the Chinese need them there," he said. Firms in areas like pollution abatement and health care could be beneficiaries. Longer term, financial firms could also benefit. "In the future, when they get around to opening up, U.S. and European firms will be on the ground there," he said. U.S. technology firms, on the other hand, have been operating in China for a long time and face regulatory risk, including China's monopoly laws. Companies like Apple, which has a huge manufacturing footprint in China, have been actively seeking to move some operations away from China. 'Wolf warrior to wolf in sheep's skin' "We're suddenly getting these warm and fuzzy signals from China, but the thing to watch is it doesn't really change the subject," said Chang, the Rockefeller Global Family Office CIO. "You have this transition from wolf warrior to wolf in sheep's skin, trying to play nice." Chang said businesses and investors have been quick to embrace the change. "They want to go back to China, business as usual, thawing of intentions and improving relationships," he said. But, he said, investors should keep the political aspects in mind. "[House] Speaker [Kevin] McCarthy has set up a committee with the goal of addressing the rising threat of China," he said. "I don't think Xi Jinping himself has changed his long-term agenda, his China dream, his long-term ambition. The Covid lockdown has been so damaging to the Chinese economy, they want to get back to a growth path in 2023." Well Fargo's Christopher said he's starting to reexamine emerging markets. "We still prefer the U.S. and we still would be focused on a defensive quality holding, specially for long-term investors," he said. "If the world does not teeter on the brink of recession the way we were thinking late last year, then the primary beneficiary could be the cyclically oversold, like emerging markets," he said. "It just doesn't seem like it's going to happen yet." Correction: Ben Kirby is co-head of investments at Thornburg Investment Management. An earlier version misstated the firm's name.