The potential inflationary troubles affecting China’s economy are possibly more serious than they appear, according to the chief investment officer of an Asian equities manager.
“We suspect the inflation picture in China is much worse in reality than the 6.2 per cent of CPI, as reported by the government,” Seres Asset Management chief investment officer Evan Erlanson said.
“We see pork prices rising by almost 1 per cent and there doesn’t seem to be much respite for that,” he added.
“So CPI is the big body in the water that has the potential of rising to the surface and truly turn that bear market into a very deep bear market that surpasses the lows of 2008.”
Aside from this element of the Chinese economy Erlanson said there continued to be characteristics inherent in Asian markets that were attractive to investors in regard to valuations with some stocks potentially being undervalued by 10 to 15 per cent.
“Especially the smaller companies that have been punished perhaps disproportionately are getting very attractive and dividend yields are getting very attractive,” he said.
“And if you believe emerging market currencies, especially Chinese Renminbi, the Indonesian Rupia, and some of the other currencies around the region that should be strengthening, it’s a very good yield story as well and with the flight to safety taking whatever turns out in the bond market, equities could be a very good place to look for that.”
