Divided views on geopolitical impact for China
The jury is out on whether Chinese equities are at risk over the long-term from an enduring conflict in the Ukraine, with disparate views between fund managers.
Antipodes believed Chinese equities would continue to offer compelling opportunities for investors over the medium to long term, despite the weakness in the headline valuations of Chinese companies over the past year, so long as the investor took a medium to long term approach
Antipodes’ portfolio manager, Sunny Bangia, said: “There is a trade-up occurring in the consumer. There are interesting things happening in terms of decarbonisation and the industrial part of China, and we feel very positive on many of those developments.”
Fidelity International global chief investment officer, Andrew McCaffery, said China could serve as a useful diversifier as it was geographically and economically removed from the conflict in the Ukraine.
According to McCaffery, China would benefit from capacity for further monetary and fiscal easing, and it offered more attractive starting valuations.
But McCaffery cautioned against too much investment in Chinese assets as uncertainty remained high.
“China policy goals are focused on deleveraging, property sector reform and sustainable growth. In this regard, its outlook now looks less straightforward than it did in 2008 during the Global Financial Crisis.
“We don’t expect China to repeat its previous role as the “fiscal put” that dislodges the global economy from its stagflationary trajectory.”
BlackRock Investment Institute (BII) took a similar stance on China in its 12-month tactical view of Chinese assets vs broad global asset classes, flagging Chinese stocks as more risky, despite improved valuations leaving them moderately underweight.
“We prefer more targeted exposure to China because of easing monetary and regulatory policy.”
BII believed China’s ties to Russia had created a new geopolitical concern that required more compensation for holding Chinese assets.
Bangia said Antipodes had trimmed some exposure to Chinese internet platforms, while it had increased exposure on Chinese domestic cyclical businesses that would participate in an economic rebound, including travel and property related exposures.
“There has been a big de-rating on Chinese stocks and there’s been a large repricing of equity risk premia in China,” he said.
“So, we do see that the current valuations are not factoring in much potential upside for policy change or economic stabilisation which we are seeing evidence of.”
AUTHOR
Liam Cormican
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