InvestmentsMay 12 2023

‘You can gain exposure to China without buying Chinese equities’

Search supported by
‘You can gain exposure to China without buying Chinese equities’

Investors looking to gain exposure to the expected rebound in the Chinese economy can do so without actually investing in China, the chief investment strategist at Quilter Cheviot has said.

Speaking at an adviser roadshow in London this week (May 10), Alan McIntosh said Chinese growth, at 3 per cent last year, was the lowest in decades.

“[The country] has only just come out of a three-year lockdown, so we expect Chinese growth to get back up to 5 per cent this year and next.

“That will be hugely supportive for the global economy.”

But for investors unwilling to directly invest in China, there are ways round this, McIntosh said.

“Chinese consumers are travelling and spending money, [and] have not spent money in three years.

“There are ways of playing that from an investment point of view,” he said.

Apart from investing in Asia through emerging market funds, investors can also look at luxury companies.

“Companies like LVMH [will benefit from this], the wealth middle class like their luxury brands,” he said.

McIntosh also mentioned Prudential, which he said might benefit from big sales of life insurance products.

“There are many ways you can actually play the Chinese [economy] reopening, without necessarily investing in China itself.”

Investors interested in exposure to China have been deterred over the threat of regulatory action after a number of government-initiated crackdowns took the market by surprise and led to share price crashes.

Asset allocation

McIntosh highlighted the change in income strategies, as “for the first time in 20 years”, investors can get a better income from bonds than equities.

“If inflation comes back down to around two or three per cent, dare I say it, you might event get a positive real return from fixed income, which you would certainly not have had for a couple of decades.”

Quilter Cheviot asset allocation

Source: Quilter Cheviot

In terms of asset allocation, Quilter Cheviot’s MPS is overweight UK equities, which McIntosh said is partly due to the income attractions, and partly because of the valuations, which are at a big discount.

“Is that a value trap,” he asked, saying perhaps it could be, but highlighted the takeover activity seen in the UK market in recent months, with multinational companies buying UK companies at a discount to their US peers for a similar return to capital.

“It looks like global investors have effectively shunned the UK as investable…and actually, that offers opportunities. 

“And we like to find opportunities.”