InvestmentsFeb 24 2014

News analysis: China’s year of change

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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.”

Grace Tam, global market strategist at JPMorgan Asset Management, also points to the Chinese government’s efforts to restructure the economy as cause for optimism and expects that the National People’s Congress in March will focus investors’ attention on this.

“Any new announcement on the detail of structural reforms or the progress of existing structural reforms could be good catalysts for Chinese stocks, in particular those sectors or stocks that could benefit from the structural reforms,” Ms Tam says.

From a regional perspective, Henderson’s Mr Kerley believes the Chinese equity market offers the best combination of value and growth in the region. He sees corporate profitability as a better indicator of underlying growth and believes that, on this form, China compares well with the rest of Asia, with earnings per share stabilising in the third quarter of 2013 and now showing encouraging signs.

“Earnings revisions in China are better than anywhere else in Asia. With the market trading on a 30 per cent price-to-earnings discount to the region, earnings improving and reforms progressing, this will ultimately improve the quality of China’s growth, if not necessarily the quantity,” Mr Kerley says.

From a valuation perspective, SLI’s Mr Milligan sees medium-term opportunities for Chinese equities. He says the market movement on the day the trade figures came out was significant as it suggested that after January’s emerging market turmoil, many equity markets were oversold.

“Investors have been reassured in recent days by a series of positive news stories from developed and emerging countries, so the Chinese trade figures should be seen as a further excuse to put some risk back into portfolios,” he says.

Positive news included the reception given to new Federal Reserve chairwoman Janet Yellen’s testimony to Congress last week, as well as the muted reaction to a further $10bn tapering of quantitative easing at the end of January and the House of Representatives passing legislation extending the US debt ceiling until March 2015.