Talking Point  

China slowdown less of a concern despite volatility

 

Despite the recent economic slowdown in China, emerging markets are suitable for certain clients saving for their retirement, Schroders’ Sangita Chawla has said.

Speaking to FTAdviser, Schroders' head of retirement solutions Ms Chawla said the China slowdown was no longer as big of a concern as it had been earlier in the year, and that clients 20 years from retirement should be investing a large chunk of their portfolios to riskier assets such as emerging markets for later life savings.

China’s GDP growth slowed to 6.4 per cent in the fourth quarter of 2018 – the weakest quarterly growth figure since the financial crisis.

Ms Chawla explained: “Firstly, we believe that China has taken some ownership of the situation; we have seen an easing of monetary policy, we have seen interest rates fall, we've seen some fiscal cuts, and we have seen some lending constraints. 

“In essence, China is trying to do something to support its local businesses.”

She continued: “Secondly, contrary to what US president Donald Trump claims, China is not actually paying the tariffs, the costs are actually borne by the US firms and its consumers. 

“Because Mr Trump has said he is going to run for election again, he will not want to go into 2020 with that position still remaining... both sides are going to want to start talking very soon.”

She added: “We do not think that that process is going to be particularly smooth, we do think that what's going to happen is there's going to be some increased volatility over the short term and so for that reason, China is still a concern.”

For clients approaching 20 years to retirement, Ms Chawla suggested one way of handling risk was to have a portfolio invested in a range of asset classes; this mitigates the risk of any one asset overperforming or underperforming the other asset classes over any period of time. 

She said: “People 20 years away from retirement can probably afford to take 60-100 per cent invested in 'growth type assets' often labelled riskier such as equities, property and alternatives.

“But if you blend those combinations together quite often you end up with a portfolio that is less risky than investing in a portfolio constructed of just two asset classes which are equities and bonds.”

However, as clients approach 10 years to retirement they need to think about sequencing risk because they no longer have the necessary time to recover if market conditions fall, she added.

She said: “There is a balance to be needed between those riskier assets and those that are protecting your capital.”