Long-term view needed on China

It is important to maintain a long-term view of emerging markets such as China and India rather than focusing on their short-term volatility, according to an emerging markets expert.

Atlas Capital Management managing director John Pereira said volatility will always be a part of emerging markets investing, and concerns about China and India over-heating are typical of the short-term challenges faced by developing economies.

“You can experience some wild short-term fluctuations in emerging markets, but it is useful to devote part of your portfolio to these growth assets because, as the recovery from the [global financial crisis] shows, these economies are capable of bouncing back hard and reaching new highs quickly,” he said.

“China and India account for 37 per cent of global population but only just over 9 per cent of world GDP [gross domestic product]. There is still a long way to go [in terms of growth] and it would be foolish to expect smooth sailing all the way,” he said.

While it was natural to focus on short-term concerns such as high growth, property prices and inflation there needed to be greater understanding of how these related to the economy in question, Pereira said. China and India are very different to Australia, he added.

“These are large, highly complex and often fragmented economies, which makes them easily misunderstood,” Pereira said.

It would be better to focus on the long-term structural changes occurring in these countries, with the most substantial evidence of change evident in the GDP growth per capita, he said.