InvestmentsApr 8 2014

Threadneedle cuts equity overweight amid China “bubble” fears

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Threadneedle Investments has halved its overweight position to equities due to valuation concerns and fears surrounding China.

Mark Burgess, chief investment officer at Threadneedle, said the firm had further increased its underweight position in Asian equities because of a “burgeoning Chinese credit bubble”.

There has been an explosion of credit in China in recent years, which the government is now starting to unwind.

Mr Burgess said this was likely to cause “a material reduction in China’s growth rate”, but he claimed the impact could be much worse than that.

He warned the “unwinding of the Chinese credit bubble could severely test the Chinese financial system” and said while Chinese equity markets had priced some negative news in, he felt they could still fall further.

Threadneedle still has an overweight allocation to equities, but Mr Burgess said the asset allocation team had halved the position because equity valuations are “less compelling than they were”.

However, one area the firm is adding to is Japanese equities, where Mr Burgess thinks the “impact of the consumption tax will be lower than feared” and Japanese equities could rebound after a significant market fall so far this year.