Following a period of rapid economic expansion, a recent slowdown in China has made it quite easy to be critical of the administration there.
We have, in the past, expressed our own doubts about the sustainability of their economic growth as well as how robust some of the economic figures might have been.
In a briefing note for advisers this week, Jupiter China Fund manager Philip Ehrmann has explained that critics worrying about China’s rapid economic expansion coming to a crashing halt are underestimating the reforming zeal of the new Chinese administration.
He believes the views of critics are misplaced, as the new Chinese administration has made it clear it is engaging in meaningful reform to manage the excesses that have been building in the economy.
Some of these excesses have been intentional, others less so.
In particular, Ehrmann points to the new administration in China tackling head on the issue of funding long term major infrastructure programs with short term lending.
Jupiter hold the view that dramatic economic growth in China has been accompanied and supported by very healthy foreign currency reserves and levels of domestic savings.
This leaves China with an overall debt position which is manageable, for now.
The briefing note from Philip Ehrmann concludes with the view that a lot of concerns about China have already been reflected in the share prices of listed Chinese financial institutions.
He also points out that the wider stock market has been talked down for much of the last 18 months.
Interesting, I had a conversation with a client last week who questioned our current allocation to emerging market equities within the higher risk investment models we build for our clients.
Investors are typically scaling back their exposure to emerging markets and they are currently viewed as the ‘most unloved ever’, according to the latest Bank of America Merrill Lynch Fund Manager survey.
The survey of fund managers found that investors are the most underweight on BRIC countries — Brazil, Russia, India and China — in the history of their data.
Despite this, 43% of investors share our view that emerging market equities are ‘undervalued’, particularly following recent market falls and for investors prepared to take the longer term view.
As Warren Buffett once famously said, “Be fearful when others are greedy and greedy when others are fearful”.
We would never advocate investors took short-term positions in a particular asset class, or indeed took a position which resulted in more risk than was comfortable, tolerable or necessary.
An unloved investment market with plentiful critics can often prove, with the benefit of hindsight, to be a reasonable investment opportunity.
