The outlook for investment in Chinese equities remains positive as we head into 2013, thanks to expected economic recovery and looser reforms, Fidelity Worldwide Investments (Fidelity) has claimed.
As expected, the Chinese economy bottomed out in the third quarter of 2012 due to support from ongoing monetary easing. But recently the economy has flagged a rebound and is on track for recovery over the next 12 months.
“China is expected to witness a recovery across the board, and government policy will continue to reverse from tightening to accommodative,” Fidelity Chinese equity portfolio manager Raymond Ma said.
“The re-rating of Chinese equities is expected to continue as the global economic outlook and corporate earnings visibility continue to improve. Chinese equities are expected to witness a rally in the year of the snake on an improved market outlook.”
But Fidelity warns that investors should be wary that there are still potential risks when investing in Chinese equities.
A rebound in China’s inflation, continued depreciation of the Japanese Yen, corporates issuing more shares/debts to raise money, a prolonged eurozone crisis and an earlier-than-expected end to quantitative easing in the US should all be considered when making investment decisions.
“Most investors agree that banking de-regulation is required, but there is a danger that the Chinese leadership doesn’t do enough or does it too quickly. Getting this wrong could introduce instability to the financial system,” Fidelity portfolio manager of the Fidelity China Fund Martha Wang said.
However, both Mr Ma and Ms Wang agree that the outlook for Chinese equities in 2013 is positive.
“China is now the second cheapest market in the Asia Pacific ex-Japan region after Korea. Over the past three months, we have already seen a re-rating of Chinese equities. I expect positive earnings revisions for 2013 and 2014 will be the key driver of the next wave of rally,” Mr Ma said.
“Overall, the Chinese market and economy has endured a relatively tough couple of years, but a number of economic, market, valuation and political factors seem to be aligned. This, teamed with improving sentiment makes me optimistic for Chinese equities in the foreseeable future,” Ms Wang said.
