Investment Strategies

Renowned Wealth Management House Tells Investors: Avoid China

Tom Burroughes, Group Editor, London, 26 November 2013

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China reform plan reactions

The comments come at a time when most wealth management
firms such as UBS and Coutts have been broadly positive about the recent
package of intended reforms from Chinese policymakers, seeing them as going
further in making supply-side reforms than expected. Even so, an enduring worry
for some managers has been the amount of leverage in the Chinese economy, such
as its property sector. Chinese equity markets have lagged those of the developed
world, including Japan,
this year.

“Although equity valuations appear cheap, we advise avoiding
the temptation of looking for short-term, tactical investment opportunities.
The market could fall rapidly at the first signs of any problems,” Wiedmann’s
note said.

“Instead, investors should ensure their portfolios are well
diversified by incorporating uncorrelated instruments and assets could help to
cushion the impact of the credit bubble bursting as well as other associated
risks. They include specialist macro hedge funds that follow the situation in China
closely and have the ability to gain exposure in ways that could deliver
attractive returns if the worst-case scenario plays out. These investments
should offer diversification when China’s financial system begins to show
increasing signs of stress,” he said.

We recommend investors avoid direct exposure to China and
protect their portfolios against the associated risks,” he added.

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