Investors spooked by downturns in the Chinese economy should consider them as short-term events with long-term growth and investment opportunities set to continue, according to two fund managers.
Romina Graiver, International and Global Product Specialist with William Blair, said the recent change in Chinese leadership has seen a shift from infrastructure and capital works to the development of a stronger consumer based economy, as the former model has started to flatten out.
“China’s growth was based on a model where investment was being used to create infrastructure and GDP growth was based on that investments. However in other markets where that model has been used growth has collapsed in the following 10 years,” Graiver said.
“The new leadership has moved to a different model that is consumer driven to avoid a hard landing and while investors have been away from China due to price to earnings levels being lower the bleak scenario that could have been has not been reached. The new leadership will not allow the system to collapse.”
PM Capital, Portfolio Manager (Asian Equities), Kevin Bartoli said the Chinese market has run hard to date and there has been too much capacity in a system that was built to get it through the period following the global financial crisis.
According to Bartoli the Chinese Government’s own actions had been artificially inflating the market and there were concerns future plans could create new problems.
“Each stimulus provided by the government to offset negative results has released less upside each time which means marginal buyers are disappearing from the market,” Bartoli said.
However, Bartoli said investors could identify solid Chinese investments by looking at those firms which have listed on the US stock exchanges and were considering relisting in China.
Graiver said investors should consider stocks in ‘New China’ sectors, such as IT, the environment and the aerospace and transport industries as they have been marked as areas of priority development by the Chinese Government.
According to Graiver China is a leading player in sectors linked to consumer demand, such as IT and electronic goods, and is moving from being a cheap manufacturer to offering higher value goods and services.
