Chinese assets enter slow but stable growth orbit in 2017, experts believe

 

By Edward Leung

After a whole year of market volatilities and political turbulence, the value of Chinese asset is expected to stablise and enter slow growth orbit, experts believe.

Evaluating global situations in 2017, Sean Taylor, Chief Investment Officer –Asia Pacific for Deustche Asset Management, believed that 2017 would be a year dominated by fiscal measures from world central banks, as Central Banks are almost exhausted their QE ammunitions. Also it is also a year of strong US dollar and EM markets.

China enters slow, stable growth

With this background, Sean expects a slow and steady growth for the Chinese economy in the year. He indicated that China has been managing expectations for a decelerating growth, along with a gradually devaluating RMB, the Chinese economy is settling on a slow but stablising growth path.

“ We are looking to overweight MSCI China over Hang Seng, as the impending Stock Connect program is expected to narrow the gap between A and H Share. The Chinese equities market has gone cheaper,” he emphasized.

Also, the FX capital outflow from China has seen gradual moderation, from around USD 100-150 billion in January, to around USD 50 billion in September.

“We expect China to maintain a stable FX regime. We expect 1 USD to 7.3 RMB for December 17th,” Sean said.

Similar evaluation of China’s economy is also echoed by Aberdeen Asset Management Asia in its recent analysis. According to Aberdeen, both the Chinese property market and the difference between official and Caixin Manufacturing PMI has shown sign of stablising.

All in all, Asian companies are showing sign of steady growth. For 2017, MSCI earnings growth is projected to be at 15% for EMs.

Watch out for China’s debt swap

Even though, investors are urged to remain cautious over China’s debt conversion process.

Irene Goh, Head of Multi-Asset solution-Asia Pacific for Aberdeen told BENCHMARK, “China’s effort to set up Asset Management Company(AMC) for its debt-equity swap program is a useful tool in decelerating its debt level. However, how far it can turn bad debts into good quality asset is remain to be seen.”

“We don’t know the exact number of its scale yet. Therefore, we still urge investors to focus on fundamentals that are above global market flucutations.”

David Smith, head of corporate governance, added, “From a bottom-up perspective we are very positive on Asia. The region is still attractive for stock-picking. Companies have been sensible and governments are by and large living within their means. Earnings growth is starting to return. Although activity has slowed in China there are signs of upturn in many other countries.”

“India remains our main overweight because of its structural reform momentum and strong companies. We have been encouraged, meanwhile, by government efforts to raise standards of governance and reporting, through stewardship and other codes. A focus on more sustainable and equitable returns is important in attracting long-term capital.” BM