Aberdeen tempers the China story

Investors should not blindly invest into the Chinese stock market because of strong economic growth in the country, according to the managing director of Aberdeen Asset Management Asia, Hugh Young.

Speaking at an Aberdeen Asian investment lunch in Melbourne, Young warned that the investment world was making a mistake by assuming that strong economic growth meant by definition that investors would make money in the share market.

“To say ‘10 per cent growth in China in the next 10 years, therefore buy Chinese shares’ would be a dramatically wrong decision. It is indeed China where you can see economic growth, which has been tremendous, but the stock markets since they started have been pretty poor. Obviously strong economic growth is a nice tailwind to have, but it does not guarantee making money in stock markets,” he said.

While there were “great” figures and charts being shown about economic growth, the reality of investment was a lot more complex, Young said.

Young also warned that not all companies in Asia were run soundly, and investors have to be careful in picking companies.

“Investors must make sure that the management of the businesses in which they invest for the long-term are built on solid foundations. Not all of the companies are in this part of the world,” he said.

Aberdeen head of fixed income for Asia Pacific Anthony Michael also told the lunch that investors were missing out on exposure to Asian bonds through traditional global bonds portfolios.

“Non-Japan Asia is about 1.9 per cent of an aggregate portfolio, so you’re not getting exposure to the region most of the time using traditional fixed income approaches,” he said.

“Year in year out, if you look at the top 10 best-performing bond markets in the world, typically there will be a couple of countries from Asia in that mix, so it doesn’t make sense to us. Indonesia this year has returned 20-25 per cent. So we think there are plenty of opportunities in Asian fixed income,” he said.