Mid-way through the half-year reporting season for many Chinese companies, the manager of the China Opportunities Fund is encouraged by some positive data coming through.
He also thnks that rather than focusing on holding back growth, we can expect a further bolster to the economy.
“We do not expect a stimulus package on the scale of that in 2008-9, but we do expect subsidies, tax reductions, and possible social security reform,” he added.
He said investor concern is justified, given the difficulties the Chinese stock market has faced over the past year – slowing growth, liquidity and the impact of the Fed’s proposed tapering of its QE programme.
That said, he thinks investors could be seen to underestimate the State Council’s ability to manage China’s growth plans.
“Last month – only days after the news that second-quarter economic growth had fallen to 7.5% – the cabinet unveiled a series of measures aimed at boosting demand. We have started to see targeted policy action, for example, allowing greater access to funding for some property developers and increased investment on rail freight and transportation, together with tariff reforms.”
Awdry added that data suggests the desired effect is taking place: “HSBC’s flash purchasing manager’s manufacturing index offered some welcome news, surging to a four-month high of 50.1 in July from 47.7 previously (>50 indicates expansion). This points to a modest improvement in industrial production growth, which already surprised to the upside in July.”
Meanwhile, Legal & General Investment Management also noted the change in tone from the Chinese authorities, appreciating the difficult balancing act of attempting to control inflation while promoting growth.
Global emerging markets strategist Brian Coulton said while there is a clear need for the authorities to control credit growth they have become more explicit in confirming that liquidity would be provided should GDP growth fall below 7%.
“Essentially, China is not willing to pursue reform and restructuring at the expense of macro stability,” he added.
