Fears that the China growth story is faltering are unfounded – with the exception of the potential fallout over recent corruption allegations, a global investment manager has said.
China’s former railway minister Liu Zhijun was expelled on May 28 by the country’s ruling communist party amid allegations of bribery and corruption.
The expulsion is one year after Zhijun was relieved of his government post after an investigation into claims he had used his position to help a private businessman make illegal profits.
Aubrey Capital Management investment manager Andrew Dalrymple said that in Asia, the creation of wealth “is still incredible and opportunities to identify behavioural change are numerous”.
Dalrymple said the main fears about China were “the shadow banking system, fears over local government debt, decline in exports, corruption and an over-inflated property market. With the exception of the potential fallout over recent corruption allegations, I believe many of these concerns are over-hyped”.
The shadow banking system was regulated and was a form of private equity. Local government debt was largely under-written by the central government.
Net exports only accounted for 5 per cent of China’s GDP with consumption now accounting for 40 per cent to 45 per cent. The property market is looking better with recent wage inflation, coupled with a 6 per cent to 15 drop in prices, meaning a better balance was being achieved.
Other fund managers, such as Threadneedle Investments and Fidelity, are also bullish on the region.
Threadneedle Investments Asian Equities fund manager Gigi Chan saw three key themes: trading up, automation and the digital superhighway.
As incomes rose, low-end consumers moved from non-branded to branded goods, while mid-level consumers moved to the higher-end, she said.
“Automation is a key area for investments as wages increase and companies seek to enhance productivity,” she said.
Online technologies was “a vibrant area where we see lots of well run companies which are cash generative and are market share gainers in growing markets.”
Fidelity Worldwide Investment Asia-Pacific investment director Catherine Yeung said a key aspect of the latest Five-Year Plan was based on a number of factors.
“Beijing’s focus [is] to improve social harmony, to decrease the wealth gap that we are seeing in China, as well as moving China from being the world’s largest factory to an economy driven by services and private consumption,” she said.
“This is why Beijing is now focusing on increasing domestic consumption to reduce the country’s past reliance on exports”.
Dalrymple said that Aubrey looked for four key drivers when choosing investments for its funds.
These were: secular change; rising prosperity, which led to behavioural change; which led to innovation and finally, economic maturity.
In South-East Asia, Thailand and Indonesia were relatively attractive investment opportunities, Dalrymple said.
Holdings there included an Indonesian car manufacturer playing directly into the rising prosperity tailwind.
“People are upgrading from motorbikes to cars due to safety and comfort,” he said.
“We also have a Thai bank, which is supported by both the behavioural change tailwind and rising prosperity. People are starting to access more sophisticated forms of funding to finance the house, car or shopping trip.”
