07:01:00 | 09 February 2010
Two leading China specialists believe investors are too pessimistic on the country's stockmarket, even though some areas of the economy such as property do face the prospect of a slowdown.
William Fong, manager of the Baring China Growth Fund, says he remains positive on the prospects for the Chinese equity market over the medium to long term, despite concerns about the Chinese economy overheating.
‘Concerns about an asset bubble are overdone,’ he said, ... . ‘New loans made in 2009 are mostly being used to fund government and infrastructure projects, as well as to finance industrial capital spending. The suggestion that these loans are mainly being used for speculation in the equity and property markets is erroneous, in our opinion.
‘We believe there is ample room for China to make further developments from a domestic perspective that will enable it to digest the actual emergence of non-performing loans, when they eventually occur.’
In the short term, however, the prospect of the Chinese government taking action to slow the pace of economic growth combined with possible interest-rate may curb investors’ enthusiasm and create a risk of a period of heightened volatility in the market, he thinks.
Fong singles out consumer discretionary, financials and insurance as the equity sectors to follow most closely in 2010.
‘We expect consumer discretionary companies to benefit from increased consumer spending next year, while government policy will continue to drive more spending, both from urban and rural areas. We believe that 2010 will be a year in which fundamental stock-picking takes over from liquidity as the primary driver of the China equity market.’
Meanwhile, Richard Wong, manager of the HSBC GIF Chinese Equity fund, believes domestic consumption will remain a key driver for the economy and the rebound in Chinese shares will continue in 2010.
One of the areas he has outlined as most promising are the export related sectors. He expects these will benefit from a continuing rebound in overseas sales and after a tough 2009, those companies who remain have become leaner and gained market share from those that have closed.
He points out that China's equities lagged the performance of fellow Brics Brazil, Russia and India in 2009, but could catch up this year.
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‘Following a phenomenal rise in sales prices last year, especially between March and September, the government is keen to maintain market stability by tightening regulations, which we expect to increase for a while. In addition, interest rate increases are on the horizon for the second half of the year,’ Wong said.
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Chinese bubble fears overdone, say local specialists | Fund Selector | Citywire