Hugh Young: China facing ‘big issues’ in 2012

The manager of the £2bn Aberdeen Asia Pacific fund said there were several reasons to worry about China, which is already “a difficult market to find the right companies for”.

“There are some big balance sheet issues with property developers and we will see some of them getting into trouble,” said Mr Young.

“China has been prudent with who gets a mortgage and what deposits people had to put up front but if property continues to decline in China there will be an knock-on effect.”

The manager is also concerned about potential side-effects from China’s efforts to pump liquidity into its banking system, a programme which equates to the quantitative easing activities carried out in developed economies.

“The West printed a lot of money but people forget that China did as well and put the money through the banks to keep the economy going,” he said. “But nobody knows where some of that money had ended up.”

The Chinese government earlier this week announced that its growth domestic product (GDP) growth in the fourth quarter was 8.9 per cent - down from 9.1 per cent in the previous quarter.

“And just because economic growth is 10 per cent in China does not mean we will make the same returns in the stock market,” he said.

However, in spite of the pressures facing the economy Mr Young said he did not expect China to suffer a so-called economic ‘hard landing’ from growth to stagnation or recession.

“Given the way China works I am more inclined to think there will be a soft landing. It won’t be an out and out disaster,” he said.

Overall, Mr Young is focusing on Chinese stocks listed in the Hong Kong market - as opposed to those listed in mainland stockmarket - and the Singapore market on his fund range, saying they were were home to some of the best managed companies in Asia.

“These companies are not just regional; in some cases they are global,” he said. “It is not particularly for exposure to the economies of Hong Kong and Singapore, but for exposure to broader Asia.”

In his £191.9m Aberdeen New Dawn investment trust Mr Young holds just 4.7 per cent in Chinese mainland stocks and 21.6 per cent in Hong Kong, as well as a 16.6 per cent weighting in Singapore.

At a stock level turnover in the trust last year was just 15 per cent, described as simply “topping and tailing” by the manager.

He added just two new holdings to the fund last year, buying offshore and marine group Keppel Corporation - a major holding in Mr Young’s Singapore fund - in the final quarter of the year.

He also added UK-listed, Asia-focused bank HSBC Holdings earlier in the year. The manager said the bank was trading at a small premium to book value, “meaning it compares favourably to its Asia peers”. The last time the manager held HSBC in the investment trust was 10 years ago.

“The reason to reinvest was that the company had refocused back to Asia and has new management,” he added.