Principal Asset Management, a US-based money manager, said China is taking “meaningful” steps to revive its economy, leading to an upturn in sentiment among investors. The government should encourage “a healthy, slow bull market” instead of wild swings in prices, others said.
“We’ve been adding to China, both indirectly through Hong Kong and directly through China,” Steve Larson, a portfolio manager for global equities, said at a conference in Hong Kong on Thursday. “I have shifted from sceptical to being a lot more optimistic regarding where we go from here.”
While it is underweight in allocation to China, the fund “is going in the right direction”, said Larson, whose firm manages about US$699 billion globally as part of Des Moines, Iowa-based Principal Financial Group.
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The optimism reflects new-found confidence among global funds about China’s near-term prospects, following Beijing’s policy stimulus last month to stop the rot in the property and stock markets. The package unveiled on September 24 has sparked a world-beating rally in stock prices, along with bouts of wild swings.
Principal Asset Management is not alone. Money managers in Asia-Pacific have become more bullish too amid mounting expectations for stronger policy easing measures, according to a Bank of America survey this month. They have put more money in Chinese assets and trimmed allocations in India.
“As investors, we are naturally suspicious of Chinese government policies because in the past, execution has been a big issue,” said Alan Wang, managing director and chief investment officer for Greater China equities. “But this round, I believe a few things are very meaningful” in terms of the fresh monetary and fiscal incentives, he added.
One example, he said, was the central bank’s credit swap facility that allows nonbank financial institutions to get access to funding to support stock prices. While the facility does not create more liquidity in the system, it turns some assets into liquid funds with a “smart delegation, very market-oriented” move.
Despite a US$3 trillion rebound in Chinese stocks globally, many funds are still underweight on Chinese equities, Wang said. Just shifting their allocations to “neutral” could potentially spur US$6 billion of fund inflows into Chinese assets, he estimated.
Wang sees opportunities in state-controlled property developers and cement and aluminium producers. They will benefit from China’s measure to expand a “white list” of housing projects that will help home builders obtain state-mandated financing lifelines, Wang added.
To be sure, it may still be difficult for China to restore long-term investments and entrepreneurial spirit among local business groups following recent crackdowns and debt defaults, according to Eddie Tam Sun-keung, CEO and chief investment officer of Central Asset Investments and Management in Hong Kong.
In the case of the property market, “unless you deal with the creditors in a fair manner, it’s very hard for us to forget about the damage,” he added. He was referring to the tech-sector clampdown, and debt restructuring and haircuts imposed by Chinese developers on offshore investors.
Beijing needs to show that it is serious about promoting private sector businesses, trust the market and shift to a more balanced development model.
“What China needs now desperately is its first healthy, slow bull market in its entire history,” Tam said.
More from South China Morning Post:
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- Investors want China stocks bull run to sustain even without fiscal stimulus figure
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- Top Chinese developers’ sales up slightly in September following Beijing support
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