The so-called Third Plenum of the 18th Chinese Communist Party Congress, to be held on 9 November, is likely to herald “mega” reform with the de-regulation of industries across the country, possibly including energy, banking, medical services and infrastructure.
Also on the cards is reform of the ‘Hukou’ policy – a long-standing residency system that ties citizens to their birthplace and classes them as either rural or urban – which would relax rules restricting labour mobility.
Tubbs is currently 3.5% overweight China in his Global Emerging Markets Fund, with a focus on stocks likely to benefit from government actions.
“The biggest mistake emerging market investors make is forgetting that you don’t bet against government policy in China,” he said.
“In my top-3 holdings is China State Construction, which builds affordable housing. If there is a relaxation of the Hukou system, it should encourage more people to leave farmland and move to the cities, and therefore they’ll need homes.”
Another example is gas distributor ENN Group. With air pollution once again a serious problem in urban China, this firm is likely to be a beneficiary with a renewed focus on cleaner energy, particularly natural gas.
Tubbs added that emerging market inflows are beginning to recover after a difficult year: “People are getting back in and buying on the dips and it’s clear why as emerging markets are on 10.5x forward earnings versus around 14x for the S&P 500.”
“Savvy investors always like to buy the laggards and in 2013 emerging markets has been the big laggard”.
Elsewhere, JP Morgan has unveiled details about its equity and bond emerging market income fund, to be managed by Richard Titherington and Pierre Yves Bareau.
