Investment concern over China

While China should continue to experience strong growth, inflationary pressures there will have monetary policy implications for western economies, according to UK-based global fund manager Standard Life Investments.

Investors are overly concerned by short-term issues such as food prices affecting headline inflation, but of more concern are the rapid supply and wages growth started a trend towards exported inflation, the manager stated.

It is not clear whether China will retain its bias towards exports and property or shift towards consumption and services, according to Standard Life Investments head of global strategy Andrew Milligan.

The manager has previously recommended investors gain exposure to emerging markets such as China through the export and local production capacity of companies listed in western markets, he said.

But significant further monetary tightening is expected in China, sending a strong cautionary signal to investors, not only in Chinese assets but with heavy positions in emerging markets equities, he said.

As such Standard Life Investments has moved light in Asian equities and used the resulting funds to invest in the more defensive US equity market, Milligan said.

A useful re-entry point may approach once the bad news regarding inflation and China’s monetary policy response have been priced in to the market, he said.