Investors should expect a large fiscal programme, said Harris, which in turn should support the equity market and small and mid-caps in particular.
He added: “China is experiencing a hard landing and the Chinese equity market now reflects this issue to a major extent..As we suggested, the market now appears to be base building for a more sustainable but lower trajectory rally. Equity market rallies have been led by participants focusing on highly liquid large cap indices and the beneficiaries of stimulus. For this to be a sustainable rally, we would now expect to see a broadening of stock participation.”
Having been relatively bearish, Harris has increased his weighting in some laggard areas of the Chinese equity markets, such as mid and small cap equities.
Emerging market bond and credit markets are likely to continue to struggle with the effects of the strong US dollar, weak global growth and weak commodity prices, Harries said: “It is evident that issuance of local and hard currency debt in Emerging Markets has markedly increased in recent years, with domestic loans and locally issued bonds of companies ex China moving up from $3.5 trillion in 2008 to $6.3 trillion currently.”
“It is no surprise that the International Monetary Fund has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging market corporate defaults and panic in financial markets as liquidity evaporates.”
The group Multi-Asset Dynamic fund has just 0.34% in emerging markets, while the group’s Multi-Asset Diversified fund has 4.55%.
