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23 January 2017

Will Chinese year of the rooster leave investors crowing, or with egg on their face?

By Darius McDermott, managing director

The Chinese stock market is a little like a Chinese banquet: extremely varied, with some fantastic looking choices, but also some that may need closer inspection before you dive in…

As we approach the start of a Chinese New Year this Friday, will the year of the rooster be one investors can crow about, or will they end up with egg on their face? Darius McDermott, managing director of FundCalibre, goes through some of the pros and cons:

Pros

  1. Trade: “With the Trans-Pacific Partnership under threat in a Trump administration, China has wasted no time promoting its own Regional Comprehensive Economic Partnership, which is a proposed trade deal between south east Asian countries.”

  2. Growing middle classes: “It’s easy to forget the sheer size of China’s population which, at around 1.4 billion people, is more than four times the size of the United States. As China’s middle class expands, the potential for consumer spending growth is enormous.”

  3. Consumer-led economy: “Speaking of the consumer, some green shoots are finally emerging in the transition to a consumer-led economy. Healthcare, education, auto sales and entertainment are all starting to see some decent growth. Technology is also an interesting area, with some Chinese companies much more advanced than their US counterparts.”

Cons

  1. Corporate debt: “China has a massive debt problem—debt to GDP is around 260%—and the state-owned companies, which are being propped up by some of this debt, are dragging on the economy.”

  2. Property market: “A worry for a few years now, the Chinese property market continues to expand – house prices soared again last year, further inflating the asset bubble.”

  3. Capital outflows: “Over the past few months, capital outflows from China have continued as foreign investors have become more nervous over the outlook and wary of further intervention from the state.”

Funds to consider

Investors considering Chinese equities could take a look at the following Elite Rated funds:

First State Greater China Growth
Invesco Perpetual Hong Kong & China
JOHCM Asia ex Japan (37%* in China & Hong Kong)
Matthews Asia Pacific Tiger (35%* in China & Hong Kong)

Where to next?

*Source: FE Analytics, 30th November 2016

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius' views are his own and do not constitute financial advice.

©2016 FundCalibre Ltd. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete, or accurate. FundCalibre, shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use.