KEEN INVESTORS ‘SHOULD HAVE CHINA EXPOSURE’

Global asset managers including Pimco and Amundi say those taking a long-term view need to include mainland assets in their portfolio mix

Investors cannot generalise about China but should better understand its unique characteristics, as it does not make sense for those with a long-term view to avoid exposure to the country, experts said at a summit in Hong Kong.

“There are a lot of people who don’t understand the fact that the Chinese consumer is a cash-oriented investor who doesn’t like debt,” said John Studzinski, vice-chairman of asset manager Pimco, which oversees assets worth US$2 trillion. “And the Chinese-oriented investor is someone who’s very prudent and very conservative.”

Right now, China had a very high savings rate, and therefore the retail financial market was developing, he said during a panel discussion at the Endowus Investment Summit yesterday.

“We actually are quite encouraged by the evolution of capital markets in mainland China,” Studzinski said.

There are signs the mainland economy is stabilising, according to Hong Kong Monetary Authority deputy CEO Howard Lee, as it grew at a better-than-expected rate of 5.3 per cent in the first quarter. That puts the country on course for this year’s growth target despite challenges from the downturn in the property market and subdued domestic demand.

“It’s not super bullish,” Lee said during the same panel discussion. “But still, people will take it that stabilisation is in sight. It perhaps will still take quite a bit of time for some excesses to be removed or digested.

“China is the second-biggest economy in the world. It doesn’t make sense for a serious investor with a long-term view not to have exposure.”

Studzinski said the significant government debt in China existed at the local level, not the central government level.

“It’s different from what people think,” he said. “There’s an investor communication issue there, which has led a lot of people to be much more cautious.”

Local government debt on the mainland rose by 14.3 per cent on the year to 41.4 trillion yuan (HK$44.7 trillion) at the end of February, according to the Ministry of Finance, although the figure does not include so-called hidden debts, including local government financing vehicles.

Beijing has already made efforts to relieve the pressure by suspending infrastructure projects in some of the most indebted provinces and providing funds through transfer payment channels and special treasury bonds.

Pimco was approaching real estate investments on the mainland with appropriate caution given the property crisis, Studzinski said. But many other areas, such as the green industries in the country, were performing well.

He is positive about China in the long term, while taking note of the current challenges.

“We have to be cautious about the short term … until the government looks at some further stimulus to rectify some groups’ current challenges,” he said.

Other speakers agreed China should be in the asset manager’s portfolio mix.

“It doesn’t mean you should have a significant allocation to China, but having no China is, I think, a mistake,” Florian Neto, head of investment for Hong Kong and Taiwan and head of multi-asset for Asia at French asset manager Amundi, said at another panel.

“Forget about the short-term pain,” he said, adding there were attractive Chinese companies to invest in.

Investors should look at companies with high levels of cash in their balance sheets, firms doing share buy-backs and those delivering double-digit revenue, Neto said.

There’s an investor communication issue there, which has led a lot of people to be much more cautious

JOHN STUDZINSKI, VICE-CHAIRMAN, PIMCO