JP Morgan’s Forey reveals what is behind his big China bet

JP Morgan’s Forey reveals what is behind his big China bet

More and better quality of companies available for overseas investors to buy is behind the decision of Austin Forey, a managing director at JP Morgan, deploy more capital in China than ever before.

Mr Forey runs the £1bn JP Morgan Emerging Markets investment trust and the £1.1bn JP Morgan Emerging markets fund.

He said the opening of the Chinese domestic equity market, via A shares, has been key to his increased exposure.

The A shares market is a listing of stocks that previously only Chinese domestic investors were permitted to invest in. But in 2017 access to the market was opened widely to overseas investors.

Mr Foley said: “Previously, the parts of the stock market you could invest in were not that attractive to us, areas such as commodities and banks, and state owned enterprises.

"But those were not the parts of the economy in China where the growth was.

"But the A shares market has opened up a whole set of more interesting opportunities for us. It has probably doubled the opportunity set.”

He added that the listing of companies such as Alibaba on the main stock exchange has also created new opportunities.

On the risk to China of a trade war with the US, Mr Forey said he does not see this as a major problem, despite an escalation in aggressive rhetoric between the two economic giants.

He said most of what has happened so far has been “noise”, which investors should ignore.

His concern about the level of credit growth in the Chinese economy “about three years ago”, have also subsided, and Mr Foley said he does not now see a hard landing for the economy, as policy makers in China have acted to prevent a deep crisis emerging.

The Chinese population have substantial savings, and it is from this that banks raise capital to lend.

This contrasts with the model deployed by many banks in developed markets prior to and since the global financial crisis, whereby lending is expanded far beyond the level of deposits held by commercial banks through the use of capital markets.

It was the collapse in the availability of this funding that precipitated the global financial crisis of 2007.   

The three sectors of the emerging markets Mr Forey finds most interesting are financial companies, consumer stocks and technology.

Dale Nicholls, who runs the £1.8bn Fidelity China Special Situations investment trust, said consumer growth is his focus.

He said: “Investments related to the rise of China’s middle-class consumer remain a core focus for me.

"These consumers are demanding more from products and services - and some companies are responding with strong offerings on both of these fronts.”

Jason Hollands, managing director for business development and communications at Tilney, said there are considerable value opportunities in emerging markets.

"Undoubtedly even greater than the headline number suggests given the influence of a cluster of major technology stocks: Baidu, Alibaba and Tencent, which together make up around a third of the MSCI China Index, and saw very sharp share price rises in 2017.