A number of fund managers are steering clear of the Chinese stockmarket in spite of official figures showing the economy grew faster than expected in 2014.
The investors cited a long-term slowdown in growth and government reforms as reasons behind their bearishness.
The Chinese government last week said the economy had grown 7.4 per cent in 2014, the slowest pace seen for 24 years.
However, the news was still better than most experts had feared, beating a consensus forecast of 7.2 per cent.
The news triggered a rally in the Chinese stockmarket, with the Shanghai Composite index rising 4.9 per cent, its biggest one-day gain in four years, extending an extraordinary rally that has seen the index rise by 61.8 per cent in the past six months.
But UK managers are still shunning the region in the face of what they perceive as tough long-term headwinds.
James Thomson, manager of the £505.6m Rathbone Global Opportunities fund, said he was not confident in China and holds few stocks from the country in his portfolio.
He said: “The economy remains fraught with dangerous imbalances, and the divergences in global monetary policies, currency wars and the end of the commodity super-cycle can only make things worse.
“The economy is addicted to investment spending, currently contributing around 50 per cent of GDP [gross domestic product]. Any transition to a consumption-based economy will be akin to going cold turkey.”
The International Monetary Fund last week downgraded its growth expectations for China in 2016 by 0.5 per cent, from 6.8 per cent to 6.3 per cent. If this happens, the economy will be growing at a slower pace than India’s.
The government is expected to deepen reforms this year, which could lead to an acceleration in China’s slowdown.
Jeremy Thomas, manager of the £327.5m Brunner Investment Trust, explained: “The Chinese government needs to shift the economy from its reliance on debt-funded fixed asset investment, which is not sustainable.
“This, in combination with a wide-ranging crackdown on corruption and falling property prices, is leading the Chinese economy to slow quite rapidly.”
Mr Thomas also said that China’s official figures vastly overstate its actual growth. From analysing various strands of data himself, he thinks China is in reality growing at a rate of 3 per cent to 5 per cent.
Even during the strong recent rise, the Chinese market was volatile. Last week the Shanghai Composite also plummeted 7.7 per cent, its largest one-day loss in six years.
The drastic fall came as the China Securities Regulatory Commission banned three of the largest brokers from opening new margin trading accounts, which allows investors to borrow money to buy into the stockmarket.
Anthony Rayner, co-manager of the Miton Multi-Asset Special Situations fund, which does not hold any stocks in emerging markets, said he would not look at China until markets had calmed.
He said: “It’s been a very volatile market and it seems that the market is telling the authorities they don’t really know what is going on.”
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