News analysis: China’s year of change

China, with characteristic predictability, delivered a confusing set of trade numbers last week. January’s import growth figures hit a six-month high, while exports climbed 10.6 per cent from a year earlier, more than five times market forecasts of a 2 per cent rise.

The country’s trade surplus jumped to $31.9bn (£19.1bn), well in excess of forecasts of $23.7bn and December’s $25.6bn.

So does this mean that fears about a slowdown in the world’s second largest economy are wide of the mark? And what do fund managers and economists make of the data? Are they increasing exposure and encouraging investors to add to their holdings in China?

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China’s January trade figures are notoriously volatile and can be distorted by the timing of Chinese New Year, which can fall in January or February.

Andrew Milligan, head of global strategy at Standard Life Investments (SLI), says: “We are always cautious about China’s economic figures around New Year as seasonal adjustment can be difficult. This is even more so with the trade data, as this time last year there were measurement problems related to cross-border invoicing.”

Other trade data for Asian economies suggests little change in the underlying trends in recent months, with positive, but low, rates of growth. China’s business surveys also suggest a moderately slowing economy into the spring, which ties in with the rebalancing of the economy that the authorities are seeking.

Mr Milligan adds: “We have not altered our investment outlook for China, nor would this data encourage us to change our house view. The economy is slowing moderately and looks set to grow a little above 7 per cent in 2014, while inflation should be contained. The sizeable debt problems are becoming evident, but the situation is manageable for the authorities at present.”

Michael Kerley, director of pan-Asian equities at Henderson Global Investors, believes the trade numbers were partly buoyed by high commodity imports, particularly copper, which may indicate an improvement in underlying demand.

The manager of the Henderson Asian Dividend Income fund says: “The [trade] numbers could just be reflecting an inventory build as stock numbers were extremely low. A few more months of trade data are required before drawing conclusions on the sustainability of the January data.”

Mr Kerley has been bullish on China for some time, even more so since the government’s reform agenda was announced at the third plenum in November. His optimism is not based on the average levels of economic growth in the economy, but on the opportunities that arise for the companies that Henderson invests in.

He adds: “These opportunities will manifest themselves whether the economy is growing at 8 per cent or 6 per cent. We would much rather focus on the changes that have occurred since November, most of which have gone unheralded.

“Examples are: three regions loosening the one-child policy and allowing migrant registration; five provinces allowing market pricing for natural gas; and detailed policies on allowing private enterprise into healthcare and infrastructure.”