Fund Management

Positive Predictions For Onshore Chinese Equities - Barings

Stephen Little Reporter London 13 June 2013

Positive Predictions For Onshore Chinese Equities - Barings

Despite a challenging 2013 so far for Asian and emerging equity markets, Barings Asset Management forecasts onshore Chinese equities will continue to reward investors given that the market provides unique and direct access to China’s long-term growth and companies which are either unavailable or under-represented in Hong Kong and overseas exchanges.

The MSCI China A Index has returned 7 per cent in US dollar terms in the first five months of the year. Over the same period, offshore Chinese equities have declined by 4.3 per cent, while the MSCI AC Asia ex Japan and the MSCI Emerging Markets indices have returned 0.2 per cent and -3.3 per cent respectively.

"Recent market returns highlight to good effect the onshore market’s diversification characteristics. Largely dominated by investors in mainland China, A-shares have historically had low correlations with other regional and global equity markets and have therefore offered investors some protection from external shocks and sudden changes in global risk appetite," said Winston Ke, investment manager for Asian equities at Baring Asset Management in Hong Kong.

Ke believes that despite the slowdown in China's economic growth, it remains at a substantial premium to most other markets, which is likely to remain the case for the foreseeable future.

"The Organisation for Economic Co-operation and Development expects China to experience annual economic growth of 6.6 per cent all the way through to 2030. This is three times the 2.2 per cent rate of expansion predicted across the OECD member countries over the same period and we believe this strongly supports the case for investors having exposure to onshore Chinese equities," said Ke.

Ke points out that government policy remains a major driver of the A-share market and an important consideration for investors.

"We continue to favour consumer-related companies given the new leadership’s commitment to rebalancing the Chinese economy away from exports and infrastructure investment and towards consumption, thus targeting a more sustainable rate of growth over the long-term," said Ke.

"We are particularly positive on the consumer staples sector, where we have significant exposure to regional supermarkets, which should be major beneficiaries of rising demand in China’s second, third and fourth tier cities. Healthcare is another sector which benefits from the long-term growth in consumption in China," he added.

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