Talking Point  

What slower Chinese growth means for your clients


China growing at 3 per cent would still add a significant amount to the global economy, a senior fund manager has stated.

Matthew Dobbs, fund manager for Schroders, said: "Obviously a strong growth in China is good for the world but one must remember a China growing at 3 per cent or 4 per cent is adding as much dollar GDP to the global world economy as China growing at 10 per cent ten years ago.

"This is down to the simple fact that China is a much bigger economy now - by many measures it is the second biggest economy."

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He said while people tend to associate strong growth with good returns, there was not necessarily a direct correlation between past strong economic growth in China and the quality and strength of the domestic equity market.

Mr Dobbs told FTAdviser: "One of the slightly odd things about China is that, over the long-term, a lot of very high growth in China has not necessarily been translated into that good a return from the domestic market.

"Actually, domestic market returns, certainly in the first couple of decades of opening up back in the 1990s, were really rather poor."

According to Mr Dobbs, over the next 12 to 24 months, the most fascinating thing about China is the fact there will be slower growth from the economy, but there will be strong growth stocks emerging from the domestic market.

He told Emma Ann Hughes, editor of FTAdviser and Financial Adviser: "The old way of throwing cheap money at state-owned enterprises, in terms of return on investment, hasn't done that well for investors.

"We will still see the New Silk Road and One Belt, One Road, all this still will go on", he said, but stressed there were other places where investors should look in the Chinese market for growth stocks.

Mr Dobbs explained: "China is not far off being a $10,000 GDP (£7,390) per capita market economy. There is a burgeoning middle class, and they are extremely open to new ways of doing things."

This is why there are new companies such as Tencent and Alibaba, he commented, which are "rivaling the FAANG stocks in terms of market cap" he said, referencing the Facebook, Amazon, Apple, Netflix and Google tech and consumer discretionary stocks in the US.

Moreover, he said the share of patents being filed from Asia indicates a strong surge in terms of development.

"It's going to be the consumer, the services and less the steel and the coal and the heavy industries", Mr Dobbs added. 

Mr Dobbs runs the Schroder Asian Alpha Plus, the Schroder ISF Global EM Smaller Companies, the Schroder ISF Global Smaller Companies, and the Schroder Small Cap Discovery A funds.

Photo: Jimmy Chang via Unsplash