Top dog China takes stock
IT IS Chinese New Year on Friday and the country will be celebrating the Year of the Dog, after a runaway 12 months for its stock markets.
China raced ahead of the pack last year with share prices growing an incredible 54 per cent, according to MSCI, well ahead of any other major economy. However, investors have been worried recently, as the country’s markets have been caught up in global equities volatility.
Millions of ordinary UK investors hold some of their pension and Isa funds in emerging markets such as China, in the hope of sniffing out superior investment returns.
So will China remain top dog in the coming 12 months? WORLD CLASS Mark Ward, head of trading at wealth adviser Sanlam UK, said China has shot to global superpower status in an incredibly short time: “For an economy that was smaller than Canada’s only two decades ago, it is amazing to think that China’s economy is nearly the world’s largest.”
This is a case of back to the future, given that China made up a third of the global economy 200 years ago. He added: “If history repeats itself, it will not be running out of steam any time soon.”
Its GDP increased by 6.9 per cent in 2017, growth rates the US, UK and Europe can only dream about. “China has developed a habit of continually surpassing all expectations,” Ward added. BABY BOOM Tilney managing director Jason Hollands said China is difficult to resist for long-term investors who are able to withstand short-term volatility. However, he warned there are dangers as well: “Many analysts are concerned about the rapid growth in debt, which is now more than three times GDP.”
Despite scrapping its unpopular “one child” policy in 2016, the country still faces a shortage of young people. He said: “As the population ages and workforce declines, this is slowing growth and leading to a shortfall in its pension system.”
Chinese authorities are in a race against time as they deal with the twin challenges of debt and demographics that also threaten the West. Another issue is that many listed firms are controlled by the Chinese government and corporate governance is not up to Western standards.
Hollands said investors should diversify their risk by purchasing a broader global emerging markets fund, rather than one that invests purely in China: “Funds to consider include Schroder Asian Alpha Plus, which has 30 per cent in Chinese firms and 20 per cent in Hong Kong, plus exposure to South Korea, India and Taiwan.”
The fund is up 22 per cent over the past year and 72 per over five years, according to figures from TrustNet.com.
Hollands also tipped Fidelity Emerging Markets, which is around 23 per cent invested in China and 9 per cent in Hong Kong, plus South Africa, India, Russia and others. It is up 20 per cent over one year and 65 per cent over five years.
Rathbones’ Ed Smith said that despite debt concerns China should remain the largest Asian growth engine for the next 20 years. He said that despite recent stock market volatility China should benefit from continuing strong growth in the world economy, as President Xi Jinping presses ahead on economic reforms: “Global economic and financial conditions will ensure China and emerging market equities have another good year.”
Howard Wang, portfolio manager of JP Morgan Chinese Investment Trust, said Chinese growth rates may slow as the country clamps down on industry to curb pollution, but the outlook is promising as corporate earnings grow: “The government is demonstrating political maturity, which should aid policy.”
Despite its challenges most analysts say that China should continue to show its pedigree in the years ahead.