China vaulations provide great entry proint for investors
Current valuations in China provide a great entry point for investors, says Andreas Roemer, head of emerging markets, DWS Investments…
China’s investment potential looks set to remain strong in 2012, benefiting from the same forces that drove asset markets in the US and Europe in the 1990s and 2000s. Excluding the deflation threat caused by the European debt crisis and based on the latest purchase managers’ index (PMI) data, China’s economy seems to have found its feet. Global consumer spending has received a boost since its significant decline and the Chinese government is making positive monetary and fiscal decisions to maintain a stable economy and encourage growth.
We expect a modest fiscal easing in 2012 with government priorities focusing on public housing, completion of ongoing infrastructure projects, small to medium enterprises, services and consumption. China has been underperforming steadily since the end of 2009, mostly due to overheating and tightening fears. These fears are gradually fading, therefore we believe that investors should take a positive view.
During the annual Central Economic Working meeting (12-14 December 2011) the government maintained its economic objective of "striking a balance among stable growth, structural adjustment and inflation control". In this context, stimulating domestic demand, particularly consumption, is a priority.
Policymakers are highlighting the importance of maintaining appropriate investment scale in railways, agriculture irrigations, for example, while ensuring the financing demands of existing projects.
Energy – the upcoming refinery pricing mechanism reform and windfall tax reform are expected to be implemented shortly, creating interesting opportunities.
IT – China’s e-commerce industry is in its early stages and likely to become the biggest beneficiary of China’s pro-consumption policies, the largest internet population in the world, and have the fastest-growing user base of mobile internet.
Consumer discretionary – we have observed the slower momentum for ‘store’ sales and the declining demand for luxury goods and jewellery.
Industrials – weaker export outlook due to the weak demand from Europe in particular, as well as slower growth in industrial activities is indicated by the below - 50 PMI figures.
Telecom – lack of a growth catalyst means there is little room for earnings to significantly beat forecasts. We believe that investors who maintain exposure to China will benefit from the relative better growth prospects. In addition, current valuations are at 10 year low points, providing a great entry point for long-term investors.
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