Can China funds claw their way back in Year of Rooster?

Can China funds claw their way back in Year of Rooster?
 Credit: David Gray/Reuters

Tomorrow (28 January) ushers in the Chinese New Year of the Rooster.  

The start of the Year of the Rooster is the beginning of Chinese Lunar New Year Golden Week.

This week-long national holiday can have a big impact on global financial markets so FTAdviser asked investment experts what they think the next 12 months has in store for China and your client’s investments in the region.

A re-occurring name that kept on cropping up when speaking to investment experts was President Donald Trump.

Fund managers with a China focus are assessing what impact President Trump’s isolationist stance will have on the region.

Nicholas Yeo, head of equities for China and Hong Kong at Aberdeen and manager on Aberdeen New Dawn and Aberdeen Asian Smaller Companies investment trusts, said external shocks to growth were most likely to come in the form of trade tariffs if President Trump succumbs to his anti-globalisation instincts. 

Mr Yeo said this would curtail Chinese exports in the short term, and have a knock-on effect on bank lending and manufacturing. 

In the long term, however, he said it would compel policymakers to accelerate structural reform of outmoded state-owned sectors.

Mr Yeo said: “We believe China has the resources and policy tools to guard against financial instability. 

“To preserve growth, we can expect Beijing to step in and stimulate its economy, more likely through infrastructure spending than a return to property stimulus. 

“It is all part and parcel of China’s boom-bust transition from an insulated and impoverished nation of farmers to a liberalised and prosperous global powerhouse.  For investors it translates into stock market volatility.”

Sheridan Admans, investment research manager at The Share Centre, said a key risk to the Chinese economy in 2017 is the US FED raising interest rates as this will likely lead to an increase in the pace of outflows from China. 

Howard Wang, manager of JPMorgan Chinese Investment Trust, said the outcome of the US presidential election could also result in investors potentially seeing a further tightening of financial conditions in China.

He said this would be in response to pressure on the currency, as authorities attempt to buy time for an easing in the US dollar rally. 

Bigger risks

But Dale Nicholls, portfolio manager of Fidelity China Special Situations, said a bigger risk facing China than President Trump’s approach to dictating US policy was the growth in credit.

China’s debt to GDP ratio is high at more than 200 per cent.

While there have been signs of the growth in credit slowing, particularly in the so-called shadow banking area, Mr Nicholls said more progress needs to be made here.

He said: “As a stock picker, one of the biggest disappointments under the current regime has been the lack of state owned enterprise (SOE) reform.