The parent company of fund manager Tyndall AM remains positive on global equities despite anticipation of a continued slowdown in China.
“While we don’t expect a hard landing in China, we do anticipate lower levels of growth over the medium term and this will impact on economic growth around the world,” Nikko AM head of global strategy John Vail said.
He explained that the Chinese government will likely take a long-term view on rebalancing the economy so there is unlikely to be a ‘short-term fix’ to return growth to previous high levels.
But Vail said that despite the slowdown, Nikko AM is still positive on global equities and commodities.
“Even assuming a deceleration in growth, China remains the major contributor to global GDP growth,” he said.
While there has been a drop in annual growth in China from 12 per cent in early 2010 to 7.6 per cent in the second quarter this year, levels in the region are still healthy, Tyndall AM agreed.
Tyndall head of intrinsic value equities Bon Van Munster added that the trend of urbanisation in China will work in Australia’ favour by ensuring ongoing demand for resources such as iron ore.
“There will be blips along the way, but this is typical of all cycles. We are currently in one of the tougher phases as we adjust to the changing pace of Chinese growth from an unsustainable 10 per cent plus per annum to a more sustainable 7 to 8 per cent,” Van Munster said.
He said that defensive stocks are running on price-to-earning rations that are higher than other sectors which reflects the high level of market uncertainty, prompting investors to flock to defensive stocks that have more stable earnings.
“This highlights the importance of stock selection within each sector for investors that are looking for good long-term value,” Van Munster said.
“At the moment there are a number of cheap stocks but they face a number of headwinds, which as structural changes and high Australian dollar.”
