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?
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.”
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.
But some fund managers recommend a wait-and-see approach. This year will be an important period of change for China, but by the end of it investors may have a better idea of whether Beijing has been successful in re-orientating the economy away from the export-led model that has driven growth in recent years, towards one more reliant on domestic demand.
Pam Atherton is a freelance journalist
