James Penny, chief investment officer, TAM Asset Management
We believe Chinese companies have strong growth prospects, but these may be missed if looking through a high-level macro lens only.
China is a hub of technological and entrepreneurial prosperity, and within it lies fathomless opportunity. After what has been a tough year for China and emerging markets, the market is poised for a bounce-back, driven by an adjustment to regulatory tightening. Importantly, the one-party nature of China makes it far more durable to inflationary worries and a slowdown, as the government controls both sides of the banking system – lenders and borrowers. The largest borrowers are state-owned, making China resistant to a withdrawal of capital from foreign investors.
Ultimately, if investors can identify the right managers and fund, China remains a solid capital allocation destination.
Gero Jung, chief economist at Mirabaud Asset Management
In China, the shift in policy stance towards more expansion is gaining the upper hand.
At its last press conference, the People’s Bank of China (PBoC) signalled more easing is forthcoming in order to avoid a credit collapse, and that it will accelerate policy efforts before spring. This suggests a further medium-term lending facility rate cut will be announced in the first quarter, and the reserve requirement ratio cut further.
Last week, commercial banks cut their loan prime rate, which will in part alleviate the pressure on housing, as mortgage loans are linked on the five-year loan prime rate. The banking regulator is also considering lifting some restrictions on developer access to liquidity from presold properties, currently frozen in escrow accounts. In this environment, Chinese credit growth and fixed asset investment should rebound in the beginning of the year.
Erik Knutzen, chief investment officer – multi asset class at Neuberger Berman
We believe Chinese bonds have attractive yields and diversification benefits. At the same time, China is the one major market where we are starting to see disruption and significant credit issues. Our local team covering the A-Share equity market emphasises the continuity in the government’s recent regulatory announcements, but they also note the new articulation of those goals will create winners and losers.
Our colleagues in China talk about how important it is to understand it is a policy-driven market. That policy is evolving – but it does not suddenly make China an uninvestable market. It is about allocating to the opportunities the authorities have identified as priorities.
For fixed income investors, it is a complex but interesting opportunity set. Spreads in investment-grade corporates and financials are tight, due to a flight to quality, but China’s monetary and fiscal policies are now moving in a more accommodative direction than in most developed markets, and that could support China government bonds, offering attractive yields and the potential for spread tightening against developed market government bonds.
Adrien Pichoud, chief economist & portfolio manager, iMGP Multi Asset Absolute Return fund at Syz Bank
When the Covid pandemic erupted two years ago, the world’s second-largest economy was at the forefront of a global cycle of safety and economic measures. Since then, China has seemingly entered an economic cycle of its own. A tightening in credit conditions from 2020 and a forceful crackdown on several sectors in 2021 weighed on economic growth and equity markets last year, while the western world was enjoying the strongest GDP growth in several decades.
This year looks set to extend the peculiarity of China in this global economic cycle. The PBoC has actually started to lower its interest rates and to relax access to credit, against the grain of other large central banks that look towards tightening monetary policy. A more accommodative policy mix is likely to lead to a stabilisation or even a pickup in China’s growth this year, while most of the global economy is poised to slow down after a spectacular 2021 recovery.
Those prospects offer investors opportunities in equities and credit, after a significant adjustment in valuation last year, as well as in government bonds, which may benefit from the ongoing monetary policy easing.
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