by Macroview Global managers are developing a pronounced bearish stance towards China, while several local managers are building up their exposure to Chinese equities, arguing the rest of the world is far too pessimistic. China has been slowing down and the outlook for emerging markets is far from positive. Summer events in China shook markets worldwide and the consensus is that the worst is yet to come. Chinese economic data has been below expectations for the past year and a half, with the industrial sector becoming increasingly weak and corporate profits moving downward. And while the world is looking at China like a time bomb about to explode, local long/short managers have been setting themselves apart being more constructive, adding risk to their long equity positions. Their optimism is not unfounded: taking a closer look at fundamentals, the MSCI China P/E ratio is at 9.3x – which is 0.7 standard deviation below the 10-year average – making valuations of Chinese equities very attractive. Meanwhile, more accommodating policies are expected from the Chinese authorities, both at the fiscal and monetary level, which should help stabilise the economy. Of course, the transformation from a manufacturing-heavy growth model to one driven by services and domestic consumer spending will be a long and bumpy process.
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Global managers are developing a pronounced bearish stance towards China, while several local managers are building up their exposure to Chinese equities, arguing the rest of the world is far too pessimistic.
China has been slowing down and the outlook for emerging markets is far from positive. Summer events in China shook markets worldwide and the consensus is that the worst is yet to come. Chinese economic data has been below expectations for the past year and a half, with the industrial sector becoming increasingly weak and corporate profits moving downward.
And while the world is looking at China like a time bomb about to explode, local long/short managers have been setting themselves apart being more constructive, adding risk to their long equity positions.
Their optimism is not unfounded: taking a closer look at fundamentals, the MSCI China P/E ratio is at 9.3x – which is 0.7 standard deviation below the 10-year average – making valuations of Chinese equities very attractive. Meanwhile, more accommodating policies are expected from the Chinese authorities, both at the fiscal and monetary level, which should help stabilise the economy.
Of course, the transformation from a manufacturing-heavy growth model to one driven by services and domestic consumer spending will be a long and bumpy process. But managers on the ground are actively demonstrating their confidence that the country has the tools to overcome the challenges lying ahead.