Share Name Share Symbol Market Type Share ISIN Share Description
JP Morgan Chinese I.T. LSE:JMC London Ordinary Share GB0003435012 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -6.50p -2.90% 217.50p 216.00p 219.00p 225.00p 216.00p 225.00p 48,821 16:35:17
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Equity Investment Instruments 0.0 2.0 2.3 96.7 163.14

JP Morgan Chinese I.T.Plc Share Discussion Threads

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Emerging markets recover, but now for the hard part by Michelle McGagh: Emerging markets have been strong performers this year, but now earnings need to improve, say investment trust managers. Emerging markets have only entered the first leg of a recovery and company earnings need to improve before a genuine turnaround can take hold. Emerging markets have had a rocky few years but investments trusts focused on the sector are among the best performers of 2016. Shares in these trusts have risen 31% on average since the start of the year. The outcome of the EU referendum in June provided a further boost to emerging market investments as the value of sterling fell, however, it is only just the start of the recovery. Carlos Hardenberg, manager of the Templeton Emerging Markets investment trust, said the ‘pendulum was swinging back’ in favour or emerging markets. Shares in the trust are up 42.8% this year, making up all the ground lost in a torrid 2015. Hardenberg took control the fund from veteran emerging market manager Mark Mobius last September. ‘The market always over reacts when the general consensus turns negative,’ said Hardenberg. ‘Share prices are more volatile than underlying earnings. We are seeing industrial production, as a measure of recovery, increasing in emerging markets...if you go country by country, there is a healthy degree of orders. ‘GDP growth is slowly improving and over the next two years markets like Russia and Brazil will see the biggest relative improvements.’ Omar Negyal, manager of the JPMorgan Global Emerging Markets Income trust, targets income rather than capital growth in his fund and said the real recovery in emerging markets will have begun when company earnings stabilise. ‘What we are seeing in emerging markets is the first leg of recovery,’ he said. ‘China is stabilising and there is an improvement in trade balances in emerging markets. For the second leg [of recovery] to come through, earnings have to start to improve. We are at the start of that,' he said. He said improved earnings would help the ‘rerating of high yield equities in the asset class’. China has been the main problem for emerging markets, with slowing growth dragging the sector down. Hardenberg holds 19% of his trust in the country. He said there were still concerns around housing and ‘over capacity in steel and cement that will have to be dealt with in future’. ‘The big negative for emerging markets is the overall impact of global uncertainty and demand and supply in commodity markets,’ said Hardenberg. Former chief economist at the International Monetary Fund Ken Rogoff has also warned of the threat China poses to the global economy due to its high levels of debt. He said there was ‘no question’ that ‘China is the greatest risk’. ‘China has been the engine of global growth,’ he said. ‘China has been really important. But China is going through a big political revolution. And I think the economy is slowing down much more than the official figures show,’ he said. However, the good news is that sentiment towards other emerging markets is becoming more positive and local emerging market currencies are ‘slowly recovery’ and companies are finally keeping ‘capital expenditure down and concentrating on cost management’, said Hardenberg. Emerging companies in mid and small cap - there are more opportunities there,’ said Hardenberg, adding that many tech companies - of which he has been a fan - were ‘leap-frogging’ more established businesses. In particular, Hardenberg said he looked for companies ‘that have sustainable business models in an area with a high barrier to entry’. ‘We are expecting that emerging markets will see a sideways development over the next 12 months and there is a clear risk from China...and there is some danger already priced in,’ he said. Although Asia is the largest geographic weighting in his trust, Hardenberg said he did not ‘have exposure to Chinese banks or insurance companies’ because of their poor asset quality and concerns the companies were ‘hiding how they are restructuring’. China is the concern for Negyal, whose trust has mounted a recovery almost as impressive as Templeton's this year, with the shares up 38.6%. ‘China is very important for emerging markets at a quarter of the asset class and for the rest of the emerging markets it is vital... because it drives the rest of the emerging markets via trade links,’ he said. ‘That’s commodity prices in Latin America or manufactured goods in the rest of Asia. There are very few emerging markets that are isolated from China. From an economic perspective, Latin America will benefit from stabilisation [in China].’ Also important for Negyal is for emerging markets ‘to re-enter growth territory’ to ensure companies can continue to pay dividends. ‘Emerging market dividends and earnings have been under pressure,’ he said. ‘The near term outlook for dividends is still a concern and it is something we want to be cautious about but in the mid and long-term growth opportunities can be seen as well,’ said Negyal.
Thanks a lot indeed. I am thinking of buying both funds for my SIPP.
The fund managers at both JMC and FCSS did very well and significantly outperformed versus the Chinese market index. The NAVs of both trusts ate near record although the Chinese Shanghai market index has dropped from a peak of over 5000 to about 3000. This shows there are very good trading opportunities in Chinese markets.
Anyone hold here or at Fidelity Chinese Special Situations?
Looking at these.
Is China really that bad? James Dowey, chief economist at Neptune Investment Management, argued the market's reactions to China's troubles since the start of the year had been 'over the top'. He argued that investors were wrongly viewing China's devaluations of its yuan currency as a symptom of a government that had 'simply lost control, with currency weakness being a manifestation of the demise', rather than a response to the strength of the dollar. While a weaker yuan would also hit China's trade partners, he said the scale of the global sell-off ignored the fears over China's slowing growth that had already been priced into emerging markets. 'With emerging markets equities at one of their cheapest-ever levels in history, it is not as though the market is in need of a reality check on emerging markets,' he said. Craig Botham, emerging markets economist at Schroders, also focused on China's currency devaluations as the key issue for global markets. China's stock market volatility was not a sign of economic weakness but of the fear that had been generated by the imminent expiry of a ban on share sales by large investors and the failing of the country's 'circuit breaker' trading suspension mechanism. Recent economic data for the country, although weak, meanwhile did not deserve too much weight, 'particularly given the pollution-related shutdowns which likely weigh on manufacturing activity'. The Chinese authorities' consistent devaluations of its yuan were more significant, he argued, in their potential to export deflation into other areas of the world, particularly emerging markets. He said his 'base case' was that these devaluations were merely aimed at maintaining a stable exchange rate. But a more dangerous devaluation, motivated by the Chinese authorities' fears over growth or deflation, was a 'definite risk'.
CREDIT SUISSE: China risks 'losing control' of the economy: The risk of a "severe correction" for China has "grown substantially", according to Credit Suisse. The investment bank had forecast a continued managed slowdown of GDP growth in 2016. But in a note sent to clients this week, fixed income Ric Deverell and his team say that fears are growing that Beijing is losing control of the economy. The perception that it is losing control could, in turn, hit real economic growth as it dents consumer and investor confidence. Deverell and his team say: Put simply, recent policy announcements related to inter alia equity markets and the currency have added to the sense that policy makers are no longer fully in control of their own destiny. China has been throwing the kitchen sink at its stock market in recent weeks to try and prop them up, with limited effectiveness. Meanwhile, China is also fiddling the yuan fix — a surprising move that is confusing people. It looks like its getting harder and harder for Beijing to paper over the cracks in its creaking economy. The big issue that China is facing is a structural slowdown, Credit Suisse says. Growth rates are reverting to the norm after a temporary, one-off boost in the 2000s thanks to China's entry into the World Trade Organisation. The idea that China's economy is cooling isn't new, but a combination of low oil prices and government tinkering have caused concerns to blow up once again, Credit Suisse says. Analyst Dong Tao writes in the note: Much of China's turbulent start to 2016 can be attributed to policy relating to both the economy and the currency. There is growing popularity for “supply-side economics” among decision makers in Beijing. Although this is positive in the long run, it is negative for growth in the short run. The focus is on the elimination of excess industrial capacity, reduction of housing inventory, and financial deleveraging. That is under way. Steel mills, cement factories, and coal mines are being closed. Anecdotally, however, workers from the closing factories are not being laid off (some chose to retire) but are being transferred to other surviving SOEs [state owned enterprises], meaning that other factories face additional costs. Infrastructure investment is still slowing. And the anti-corruption campaign continues, leaving more SOEs, banks, and local government demoralized and unwilling to lend or spend. China is hoping a rise in consumer spending can help make up some of the lost growth, providing a soft rather than hard landing. As a result, the government is trying to "rebalance" the economy away from things like raw material production and manufacturing towards more sustainable jobs. But Credit Suisse is skeptical that this rebalancing will work. Here's the bank (emphasis theirs): While the challenges to investment and production are now well known, if not understood, many believe that China can offset the weakness by increasing the pace of consumption growth. Although there is no doubt that consumption remains a relative bright spot for China, we think that it will be difficult to increase the pace of consumption growth at a time when investment comes under further downward pressure. All this is bad news for the rest of the world, as a slowdown in China has huge knock-on effects for confidence elsewhere. Markets around the world have been tanking over the last two weeks, with China a key concern.
China experiences more growing pains - By Graham Smith: The evolution of China’s stock markets continues and, it seems, it’s not always an easy path to tread. Over the past year, Chinese regulators have introduced a number of reforms to make stock markets more efficient. However, the one that became a significant factor earlier this week – the newly introduced “circuit breaker” – seems to have backfired. The idea of the circuit breaker is to halt trading in shares when prices fall past a certain point during a single trading day. That happened in China’s domestic stock markets in Shanghai and Shenzhen on Monday, following the release of a survey of business sentiment indicating that Chinese manufacturing contracted for a fifth successive month in December1. It happened again on Thursday, after China’s central bank fixed the value of the yuan about 0.5% lower against the US dollar and investors sold shares one day ahead of the planned expiry of a ban on major shareholders selling their stakes in listed companies2. There are a number of problems with circuit breakers. In markets that are naturally volatile especially, daily drop limits can get hit in the absence of any real change in the fundamentals. The suspension of trading can reinforce a pent-up demand among short-term investors to sell at the next possible opportunity. The essential problem is that interventions imposed by circuit breakers tend to delay rather than accelerate the natural path that markets would otherwise travel to find their “true level”. Similar difficulties arose during the global financial crisis, after regulators in the US and Europe introduced bans on short selling (the mechanism by which investors sell shares they do not own in the hope of buying them back at a lower price later). Domestic stock markets in Shanghai and Shenzhen, which soared during the first half of last year, partly in anticipation of foreign investors being allowed to invest in them, have proven vulnerable to swings in sentiment and bouts of selling ever since. A lack of liquidity in these markets this week caused a spill-over of selling into the more easily traded Hong Kong market too. From a fundamental perspective, it’s unlikely that anything much has changed in China since the end of last year. We know already that growth has been slowing for some time, largely because the government is encouraging a shift away from lower quality, debt-fuelled investment towards a services-orientated, consumer economy. This means better quality growth, but a bit less of it. How many of us will have noticed the labels on our goods changing from China to Vietnam over Christmas? That reflects an industry shift, as China outsources some of its traditional manufacturing to other parts of Asia and leverages what it has learnt from its global business customers (take Apple, for instance) to produce higher value-added goods and services. A survey of Chinese purchasing managers covering both manufacturing and services out on Wednesday showed an overall drop in business activity in December, but a widening gap between the two sectors. One important difference was that services companies continued to hire new staff last month while manufacturers shed jobs3. These trends are reflected in China’s retail sales, which continue to grow appreciably faster than the overall economy. Sales of consumer goods increased at an annual rate of 11% in November, with household appliances and AV equipment (+18%) furniture (+15%) and medicines (+16%) among the standout numbers4. It seems unlikely that China’s government will let overall growth slip too far. It has demonstrated already that it will not shy away from cutting interest rates and the amounts banks are required to hold in reserve in an effort to support growth. Further signs of economic weakness this year could bring more of the same5. It seems plausible too that the markets regulator will adapt the way in which circuit breakers work as, clearly, they are failing to operate as desired. Skilful, active fund managers pounce on market disconnects such as the one we have seen this week as opportunities and build their reputations on them. They are likely to be in a better position than most of us to identify the emergence of value in companies they know well and, depending on the availability of cash in their portfolios, they may act on that knowledge. Such flexibility during volatile periods presents opportunities that passive, indexed funds do not enjoy. That is as true in China as anywhere, as government initiatives to reshape the economy towards a more consumer-led entity, promises to widen the divide between winners and losers still further. China’s thriving information technology sector underlines this: Four Chinese firms – Alibaba, Baidu, Tencent and are among the world’s top-10 internet companies6. Unlike their western counterparts, such as Google and Amazon, they are ideally positioned and tailored culturally to capture growth in China’s burgeoning consumer market. At this point it seems worth mentioning that, following the stock market’s recent poor showing, Chinese equities look attractively valued overall, particularly when viewed against the higher valuations and lower prospective growth rates of western countries. Market moves in Shanghai and Shenzhen this week have bought domestic shares back close to their pre-bubble levels of just over a year ago7. Moreover, the MSCI China Index, which covers around 85% of China’s investable universe of shares, traded on less than 10 times the earnings of the companies it represents at the end of November8. While that belies substantially higher valuations among hot “new economy” stocks, it represents a sizable discount to world equities (trading on 19 times). Moreover, it suggests that, even before the market falls of this week, a good amount of pessimism about China’s future had been factored in. One can only conclude that the opening up of Chinese markets to private companies at a time when the demand for consumer goods, sustainable energy production, information technology, insurance services and better healthcare continues to expand, promises opportunities for investors prepared and able to take a longer term view.
30th November 2015 - Portfolio analysis by JP Morgan: The trust's net asset value outperformed the benchmark, while the share price underperformed. Stock selection added value in all three markets, with secular growth names in China the top contributors to returns. The overweight in Sino Biopharmaceutical continued to work well as the stock rallied on strong earnings. Our core internet position in Tencent also helped given strong mobile gaming and advertising revenue. Names geared towards positive consumption trends enjoyed share price gains, such as Zhejiang Huace Film & TV, IMax China, CAR Inc and Regina Miracle. China Petroleum & Chemical was the biggest detractor from returns given losses in its exploration & production business on the back of further oil price declines. Our position in Vipshop also hurt returns given the discount retailer's earnings miss. Uncertainty around potential tariff cuts for wind and solar power added pressure on renewable energy stocks, such as China Longyuan Power and China Everbright International, where we are overweight.
Why China's problems are worse than investors think China's problems are worse than many people think, argues Fidelity's Dominic Rossi. China's slowing economic growth has proved the catalyst for the bulk of the stock market upheavals throughout 2015. Whether it is the rout in mining stocks which has reignited over recent days, the heavy stock market falls over the summer or the jitters prompted by the failure of the US to raise interest rates in September, China has played a large role in the uncertainty facing investors as they look ahead to 2016. Pause for thought: Dominic Rossi, chief investment officer at fund group Fidelity, argued that China's economic problems were worse than many investors thought, and should prompt a shift in broader expectations around emerging markets. China's economic growth has been faltering since its double-digit expansion before the financial crisis, with the recent third quarter figures putting its annual growth rate at 6.9%. And last month, China's premier Xi Jinping said the country needed to grow by more than 6.5% over the next five years to meet its targets. Those still bullish on China have argued that despite the slowing growth, the country is still the world's faster growing major economy, with even a 6.5% growth rate far outstripping growth seen in the developed world. Deflation threat: That is too simplistic a view, argued Rossi in a conference call with investors today. China faces a deflationary threat, he said, pointing to the producer prices index – a measure of the price of factory goods – which had fallen for 32 consecutive months. Consumer prices are still rising modestly, but experts fear the slump in factory prices will ultimately hurt headline inflation. Any deflation will weigh on economic growth, as does the fall in the yuan, down 3.5% against the dollar over the year after China's shock series of devaluations over the summer. Contrast that with the US, where the economy is expected to grow by 2.5% over the year, against a backdrop of core inflation – excluding food and energy prices – of 1.9%, and nominal economic growth, accounting for inflation, is twice as fast in the US in dollar terms as in China. 'The key event in 2015 is the emerging markets crisis we are now in,' said Rossi. 'The importance of this is it basically means the emerging world has joined the developed world in a very low nominal growth framework. Up until now we have been quite happy to think of emerging markets as having a much higher nominal growth rate.' Rossi believes that markets in 2016 will continue to be led by the US. He argued markets were still in the middle of a post-financial crisis cycle contrasting markedly with the dynamics of the market that prevailed in the five years leading up to the 2008 crash. The expansion of shares valuations by an increase in the multiples – or premium – investors are prepared to pay for growth stocks, rather than a rise in profits, have driven the post-financial crisis rally. This has been lead by developed markets, particularly the US, with investors prioritising intangible assets like intellectual property over hard assets like commodities, with income investments also in the ascendancy. Strong US: Rossi sees no signs of that changing next year. 'Throughout 2016, we remain very, very confident about the health of the US consumer and we think the health of the US consumer will work its way through the developed world,' he said. But returns for much of the market will be subdued by the already-high premium placed on income-producing assets, he said. 'We are living in a world where we have too much capital chasing too little income. We are effectively bringing forward future returns to today. The gap between present value of securities today and their future value has been narrowed. 'We are in an era of defiantly high asset prices. The returns by definition must be lower by historical standards.' He argued that technology and innovation, especially in the US, was where growth opportunities remained, despite its already strong run. 'The only way within equities to escape this environment is to focus on the theme of innovation. The innovation we are seeing in information technology, social media, gaming, healthcare, medtech and biotech. It's this leadership in innovation whic is mainly captured by the Nasdaq. That leadership is here to stay.'
Like Soviet Russia in 1959, has China's economy already peaked? Structural over-capacity and falling productivity in many once-booming sectors means the Chinese economic model is now in crisis, Barry Norris, founder and CEO of Argonaut Capital When in 1959, Nikita Khrushchev visited the US; the spectacular economic growth recorded by the Soviet Union was commonly regarded as a challenge to the supremacy of the western model of democratic capitalism. Impressive statistics, such as its manufacturing output of tractors, mesmerised Western opinion formers. Newsweek warned that the Soviet Union might well be "on the highroad to economic domination of the world". American economist Paul Krugman's economic analysis suggested this "economic miracle" could be explained simply by the "rapid growth in inputs: expansion of employment, increases in education levels, and, above all, massive investment in physical capital", and that the subsequent collapse of the Soviet economic model stemmed from its failure to increase "units of output per units of input". With falling productivity, Soviet growth would inevitably slow as returns on investment diminished. According to Krugman in 1994: "Living in a world strewn with the wreckage of the Soviet empire it is hard for most people to realise that there was a time when the Soviet economy, far from being a byword for the failure of socialism, was one of the wonders of the world – that when Khrushchev pounded his shoe on the UN podium and declared 'We will bury you', it was an economic rather than a military boast". Perhaps there are parallels with perceptions of the Chinese economy today? Tipping point: The Chinese economic model has been to establish itself as the world's lowest cost manufacturer by utilising cheap (rural) migrant labour on an unprecedented scale, and then to recycle the current account surplus from these exports on an equally unprecedented capital spending boom. Accordingly, as the supply of cheap (rural) migrant labour slows and capital build in manufacturing, housing and infrastructure outstrips sustainable utilisation then – without commensurate gains in productivity – growth will slow-down. Given the economic model requires surplus savings to be ploughed back into new production, consumption remains relatively depressed. As with the post-1950s Soviet Union, there is a tipping point when the economic model stops working. China's response to the global financial crisis in 2009 – a stimulus programme, equivalent to 16% of GDP – is now widely regarded as a policy error. Local governments were provided with bank loans to finance capital spending on infrastructure, housing and manufacturing in order to achieve mandated GDP targets. Money supply doubled between 2007 and 2011, with over half of all bank lending directed toward infrastructure projects. Much of the capital formation was non-productive and wasteful. The stimulus also resulted in local party officials enriching themselves through appropriation of revenues from land sales, kick-backs and often ownership of the construction companies involved. This resulted in a conspicuous consumption boom amongst Chinese elites and more recently a subsequent backlash in the form of an 'anti-corruption' purge. The Chinese banking industry has also weakened. No major economy can sustain annualised loan growth of 30% without a subsequent rapid deterioration in asset quality. There is a general reluctance across the industry to recognise bad loans: liquidity to unprofitable or insolvent borrowers is simply rolled and, as such, the 'true' non-performing loan (NPL) ratio is likely double digit, compared to an incredulous official rate of just 2%. At best, the Chinese banking system will find itself short of equity and unable to allocate capital to profitable ventures that support sustainable economic growth. At worst, lack of confidence in a rotten and corrupt banking system will result in a wholesale loss of confidence in Chinese assets. Over-capacity: The trade-off between the short-term pain of reducing excess capacity in a wide-range of economic activities and the long-term gain of more efficient mobilisation of resources is now widely recognised. Nevertheless, it is difficult to see how capacity is shut down, as financing to 'zombie' corporates is often supplied by regional banks under the influence of local government, reluctant to create localised unemployment and unrest. A symptom of this structural over-capacity is that factory gate prices (PPI) are currently falling at an annualised double digit rate. Only by adjusting nominal output by this massive GDP deflator can it be argued that Chinese manufacturing is still contributing to overall economic growth. There is the potential for this excess manufacturing capacity to be at least partially absorbed by exports. But China is no longer the world's lowest cost manufacturer, not only because the supply of additional cheap labour has diminished, but because its currency (by virtue of being pegged to the US dollar) has risen significantly against its Asian peers (on a trade weighted basis 30% over five years). The Beijing government sees a strong and stable exchange rate as politically desirable: in part given their desire for its prestige as an international hard currency; but also because of a lack of confidence in its economic prospects that a devaluation would betray.
China could surprise: Another important factor is China. Andrew Cole, senior investment manager of the recently launched FP Pictet Multi-Asset fund, said he was becoming more optimistic about the world’s second largest economy. Although China’s devaluation of its currency in the summer revealed the economic concerns held by its leadership, Cole said Beijing had pulled all the levers at its disposal, with repeated cuts in interest rates and other stimulus measures to shore up the declining growth in gross domestic product (GDP). Cole told Citywire this convinced him that ‘whatever the number [GDP] is it doesn’t get much worse from here. We’re starting to see tentative signs that China produces a positive surprise in 2016'. His comments come amid mixed but positive data coming from China. According to today’s Financial Times, the outflow of capital from China reversed last month as the central bank and the country’s financial institutions bought a net $2 billion (12.9bn Rmb) in foreign exchange. Although figures last week showed China’s GDP fell to 6.9% in the third quarter, its lowest annual pace since 2009 with industrial production at a new low, retail sales had grown 11%, a sign that the transition from a state-led to a consumer led economy was intact. Car sales rose 13.3% to 1.9 million units in October, the fastest pace in 17 months, the FT reported.
China Adds Another 14 Tonnes To Its Gold Reserve In October: The title here is self-explanatory. China has continued to announce small monthly increases in its gold reserves as part of its new transparency of reporting, following on from its big upgrading of its reserve by some 600 tonnes back in June (supposedly six years of accumulated gold purchases). Thus China has been reporting supposed month-by-month purchases since, and these appear to have settled down to around 14 tonnes a month with an October increase at 14.01 tonnes. But many Western analysts remain sceptical regarding the true levels of the Chinese monthly purchases - indeed of the real total level of the country's gold reserves, suggesting that they both may be far larger than is being reported. China doesn't want to rock the gold price boat is the theory, so it can continue accumulating a massive gold reserve which it sees as vital in cementing its place in the global economic hierarchy. First it wants the Yuan to become part of the IMF's Special Drawing Right (SDR), which would effectively give it reserve currency status, and a decision on this is anticipated shortly. One suspects that the U.S., which dominates the IMF, will eventually have to capitulate and let the Yuan in, despite the threat this poses for current U.S. Dollar global hegemony. China's past record in hiding the real level of its gold reserves suggests it may still be doing so and, at a suitable time, will unveil them - or at least yet another substantial addition - but the first goal is the SDR. Once the Yuan becomes part of this the next phase of Chinese economic policy could come about. The Chinese always have played their economic cards very close to the chest and one suspects they may well be continuing to do so until their ultimate aim of having the dominant global currency, with all the trade advantages that brings, becomes reality. It is already the world's largest resource consuming nation and it may be only a matter of time before the petroyuan replaces the petrodollar and the Yuan the Dollar as the world's pre-eminent reserve currency. Time will tell.
China’s back in a bull market. Yep, you heard that right. The country that inspired this summer’s market panic has now rallied by more than 20% since its August low point. We’re long-term China bulls so I can’t say we’re disappointed. So what’s next? China’s growth is nowhere near 7% – but that doesn’t matter After a fraught summer, China’s Shanghai Composite index gained 10.8% during October, reports the FT. Add in more recent gains, and it’s up by more than 20% from its 26 August low point. That bounce of 20% means it’s back in a technical ‘bull’ market (that 20% is a completely arbitrary line in the sand by the way, in case you’re wondering). Following all the ‘China is doomed’ headlines of recent months, there’s been a scrabble of explanations for the sudden recovery. The authorities have been trying to reassure everyone that they’re not completely useless by cutting interest rates and re-dedicating themselves to a 7% growth target for the year, notes the FT. This sort of “things are getting better, it must be because the government has everything in hand” thinking is quite telling. It shows how well trained we’ve all become. The reality is that China’s current GDP growth is nowhere near 7% and that particular number is very much a headline fiction – an aspiration and a figurehead, rather than anything approaching a reality. It’s not even something China’s authorities try to hide particularly. What matters more is the direction of travel. As Capital Economics – whose own China indicator suggests GDP is a lot lower – points out, surveys of economic activity are “starting to turn the corner”. And “other hard numbers are moderately encouraging… growth has stabilised, albeit after a sharp slowdown earlier in the year.” Meanwhile, the stock market has blown off a lot of steam. Outstanding margin debt (people borrowing money to punt on the market, basically) has fallen by more than half since its peak. China is also loosening monetary policy a bit, but at the same time, it’s not embarked on a full-scale devaluation of the renminbi, which threatened to spill a wave of deflation across the developed world. In fact, the currency has strengthened in recent weeks. In short, it’s not all about the authorities talking a good game and ‘steadying the ship’ – instead there are real, practical reasons why the market fell, and why it’s now recovering. On the one hand, you had an overheated market that needed to correct, and on the other, you have a situation where deteriorating fundamentals have turned a corner and are starting to improve. The best times for China lie ahead: So what’s next? Asia expert Rupert Foster has been covering China for MoneyWeek magazine over the summer months. In the early summer, Rupert spelled out the long-term bull case for China, but also noted that he expected a correction of around 20-30% before the summer was out, which would provide a nice buying opportunity. So far it’s turned out pretty much to script. Rupert pinged me an email last night, updating us on his views. Here’s Rupert: “I think what’s happened over the summer very much supports my case and undermines that of the perma bears. China is undoubtedly going through lots of change – some good and some bad – and the authorities are capable of mis-managing the situation, but the overall trends are incredibly positive and most Western observers and circumspect on the outlook at best.” Importantly, the property market “continues to recover. Volumes are now up this year by 30% year-on-year with average prices up 3% in leading cities with national inventories having fallen from around 17 months to around ten months”. That’ll help with consumer sentiment and also help to allay fears about credit quality. Keeping it short and sweet, the long-term bull case for China is very much intact and this turnaround is based on solid foundations. So stick with it – and if you haven’t bought in already, you should. We’ll have more from Rupert in MoneyWeek later this month, and we’ll be discussing ways to get exposure to China.
Buy China Now… And Retire Richer! By Peter Stephens: The visit of the Chinese Premier to the UK has thrust the world's second-largest economy into the headlines. Clearly, the trade deals signed between the UK and China which are estimated to amount to over £30bn have split opinion, but for investors it seems to make sense to buy companies which are operating in the Far East. That's because China offers unrivalled growth potential. Certainly, the days of double-digit GDP growth may not return for some time (or at all), but even with growth of around 7% per annum, its economy is increasing in size at more than twice the rate of the US economy. Therefore, investing in stocks which operate within the booming Asian economy could lead to much higher rates of growth than would be achieved if investors concentrated on domestically-focused stocks. Of particular appeal are consumer goods stocks. That's because the Chinese economy is undergoing a transition away from being led by capital expenditure on infrastructure projects and towards being much more reliant upon consumer expenditure. And, with the Chinese population increasing and becoming wealthier, demand for products such as premium beverages, electronic goods and other consumer items is set to soar. In fact, with 44% of China's 1bn+ population due to be defined as 'middle class' by 2020 (up from around 28% this year), it is clear that the outlook for consumer goods sales is hugely encouraging. Furthermore, as the last couple of decades have shown, branded goods are particularly popular in China. In other words, while demand for consumer goods in general is likely to soar due to the aforementioned increase in wealth and the rise of the middle classes, Chinese demand for specific, branded goods is likely to represent a significant proportion of this growth. And, with there being a relatively small number of companies which own the major brands in areas such as beverages, electronics, health care and other spaces, those companies could be set to benefit hugely from increasing growth. So, for example, Diageo owns multiple premium spirits brands, while Unilever has a wide range of food and consumer products. These two companies are well-positioned to benefit from increasing Chinese demand alongside a number of others, although their number is perhaps smaller than many investors currently realise. Therefore, they have scarcity value. Of course, Chinese growth is not going to be a smooth ride. Just like any other economy which has posted rapid growth in history, there will inevitably be bumps in the road. That is especially the case during this transitional period and, while the recent concerns surrounding China's long term future are understandable as the country's GDP growth rate comes under pressure, they present an opportunity for long term investors to buy in at even more appealing valuations. The move from capital expenditure-led to a more consumer-focused economy does, meanwhile, call into question the future of resources companies. They have been hard hit by reduced demand for a range of commodities, but appear to have sound futures as a result of increasing demand for energy across the globe. In fact, energy demand is due to rise by 30% in the next two decades, with fossil fuels likely to retain a dominant position over renewables. So, while miners and oil companies are in the doldrums, they still offer strong growth potential in the long run. Clearly, the future is a known unknown and there are no guarantees that China will deliver on its considerable potential. However, the risk/reward ratio appears to be very favourable and, by buying Asia-focused shares now, it seems probable that retirement will be a more prosperous period than would otherwise be the case.
China is less ugly than you think The thing is, China’s problems just may not be as bad as they look. Yes, we know that the official data is fiddled. But that’s not a new thing – we’ve known that for a very long time indeed. And the fact that China’s economy is slowing isn’t new either. It started slowing in 2012. It’s just that not many people were talking about it then, or fretting about it as much as they are now. It’s got to the point where we’re at the stage where investors are now so gloomy, that there is probably greater potential for positive surprises than for negative ones. Here’s a very specific example: on Friday, sportswear giant Nike saw its shares rocket by 9%. Why? Partly because sales in China are going great guns. Sales of footwear in China and Taiwan “surged 36%” in the quarter to the end of August, and clothes sales rose 22%, reports Richard Blackden in the FT. So, while the likes of Caterpillar and anyone who relies on the commodity extraction and production business are suffering amid the mining slowdown – as you’d expect – not every China-exposed company is feeling the strain. And this isn’t restricted to individual companies. Despite the generally lacklustre economic data, and the understandable scepticism with which people treat Chinese data, various indicators suggest that things are turning around. For example, as Bloomberg reports, its China Monetary Conditions Index improved for the second month in a row in August. That’s the “first back-to-back gain since 2013”. These sorts of improvements “in the past have tended to presage either an acceleration or a stabilisation in economic growth”. But China may not be a feasible excuse to delay for very much longer.
China Financial Gauge Improves, Offering a Signal for Growth: Monetary Conditions Index has presaged past growth upturns. This time, downward pressures on growth appear more severe. China’s 10-month campaign to relax monetary policy is showing signs of an impact as financial conditions ease, a shift that could help stabilize the nation’s growth rate. Bloomberg’s China Monetary Conditions Index, a gauge that includes inflation-adjusted interest rates and the exchange rate, improved for a second month in August -- the first back-to-back gain since 2013. Episodes of improvement in the past have tended to presage either an acceleration or a stabilization in economic growth. The economy is muddling through a slump in exports and a downturn in investment growth thanks to an overhang of debt. The best bet for a pick-up may be continued gains in consumer spending, along with a turnaround in public projects -- and that’s where financing conditions come in. "As monetary policy has been loosened, there has already been a sizable turnaround in credit growth that should feed into stronger economic growth over the months ahead," said Mark Williams, chief Asia economist for Capital Economics in London. "We’ll certainly see that in the monthly data in the fourth quarter." Premier Li Keqiang has responded to the economy’s slowdown with policy easing measures including five interest rate cuts since November, reductions in the amount of deposits banks must hold as reserves, a surprise currency devaluation last month and increased fiscal support. The HSBC China Monetary Conditions Indicator also rose to a six-month high in August, after stalling in July. The Bloomberg and HSBC gauges are designed to give a sense of how monetary conditions evolve over time, with higher values indicating looser monetary conditions and lower values signaling tightening. "We expect more policy easing to generate a modest growth rebound" in the second half, economists led by Hong Kong-based Qu Hongbin, chief economist for greater China at HSBC, wrote in a note this month. While financial easing isn’t always followed by a pick up in growth -- signs of relaxation in the spring of 2014 ended up being followed by a further slowdown in the economy later in the year -- the index’s current gain coincides with other evidence that things at least are not getting any worse. The economy isn’t as weak as it may look, according to a private survey from New York-based research group China Beige Book last week, while data culled from China’s most-used search engine, biggest online outlet and main bank-card network also signaled stabilization. Though China’s central bank started cutting rates last year, the impact was until recently offset by low inflation that kept real borrowing costs high, slow loan growth, and a strong yuan choking off external demand, said Bloomberg economist Tom Orlik in Beijing. "Now those factors have started to reverse, monetary conditions are more accommodative, and that should start to put a floor under falling growth in the months ahead," he said. "No one is expecting a sharp rebound." China’s policy easing must counter severe downturns in the real estate market and industry and likely can only mitigate the impact, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. Growth is likely to slow in the second half, ending the year at 6.6 percent, and decelerate to 6 percent next year, it estimates. Underscoring weakness in China’s old-line factories, a government report Monday showed that profits at Chinese industrial companies fell the most in at least four years in August. The improvement in monetary conditions is "a stabilizing signal that growth will likely moderate only slightly," to 6.8 percent this quarter from 7 percent the previous three months, said Daili Wang, a Singapore-based economist at Roubini Global Economics.
The problem here is that a 10 percent increase on the Chinese markets these will. Give you 1 it's not worth investing here,...
Discount to NAV over 22% here. That's a lot.
'It’s becoming clearer that the capital outflows from China are accelerating, and the authorities might find it too painful to protect the currency because shrinking their foreign exchange reserves is equivalent to monetary tightening, and that is the last thing they want given the slowdown in their economy,' he said. 'In addition, there seems to be a willingness from the authorities to allow market forces to play a more important role in setting the exchange rate, given the recent recommendations from the International Monetary Fund. 'Markets are also beginning to wake up to the possibility that China might be forced to join the currency wars (given the poor recent export data and the strength of the [yuan] vesus the Japanese yen for example).'
China is rattling markets around the world. The Shanghai Composite Index tanked this morning, falling by the most since February 2007 – down more than 8%. It followed economic data showing that Chinese industrial profits had fallen in June compared with the previous year, while manufacturing activity is dropping too. So is this the end of China’s growth story? Or is it just the beginning? Why is China’s market plunging? The Chinese economy is slowing down. Commodity prices and the value of ‘commodity currencies’ (such as the Australian dollar) are collapsing, amid fears that demand is gone for good. Meanwhile, the rampant stockmarket surge we saw over the last year or so has come to an end. A market that more than doubled is now seeing a painful correction. Chinese stocks had managed – with the help of the government – to bounce back by around 16% from their 8 July low. But today saw a huge plunge in both mainland Chinese shares and Hong Kong markets. It’s probably not just weak growth that’s unnerving investors. They might also be concerned about the government’s commitment to keeping the stockmarket propped up. The International Monetary Fund (IMF) has been telling China that, while it’s OK to intervene in markets sometimes (they can hardly complain about it after all), ideally “prices should be allowed to settle through market forces”, reports Bloomberg. China responded by saying that all the measures they’ve put in place to prop up the market should be considered temporary. China is seen as wanting to keep the IMF happy at the moment. So investors may be a little worried about the longevity of the government’s commitment. “Investors are afraid the Chinese government will withdraw supporting measures from the market”, as one analyst told Bloomberg. “Once those disappear, the market cannot support itself.” Slower growth for China is inevitable: But take a step back and this isn’t quite as astonishing as the market volatility might make it seem. For a start, when a market rises at the rate China’s has, you can’t expect the inevitable corrections to be pretty. Meanwhile, as far as the growth slowdown goes, this is entirely to be expected as well. As Roger Bootle notes in The Daily Telegraph, slower growth is an inevitable aspect of economic development. “When a country is extremely poor and undeveloped, it is easy to register rapid growth rates. China’s slowdown… is fully in line with the experience of other east Asian countries.” In other words, we’ve seen this particular development model before. And it turned out pretty well for South Korea and Japan, for example. Concerns about the government’s desire or ability to manage the stockmarket are perhaps more valid, in that the response so far has been rather panicky. But then again, markets across the globe have been managed and intervened in heavily for many years now. The eurozone has only stuck together over the last few years because European Central Bank governor Mario Draghi said he would “do what it takes” to keep it all going. And elsewhere in the world, we’ve got investors biting their nails over the impact of the Federal Reserve and the Bank of England potentially raising interest rates by minuscule amounts. So ironically enough, China – perhaps the most heavily-controlled major economy in the world – is about the only place in the world where investors aren’t showing complete faith in the ability of policymakers to control and support the markets. It might take the Chinese a while to get to grips with the best way to wield their power, but at the end of the day, if they want to avoid a destabilising crash in the stockmarket, they can do it. It also helps that they have a lot more room to cut interest rates if they decide to, than most other countries right now. These are growing pains, not the end of the growth era: The thing is, as an investor, you can’t expect an evolving financial system, and one accustomed to highly centralised government control, to give you a smooth ride. But at the same time, if you’re willing and able to cope with the ups and downs, then the long-term outlook for China remains attractive. As my colleague Merryn has pointed out in the past, there are similar examples across Asia which suggest that China could be at the start of a long bull market, rather than on the verge of collapse. In short, what we’re seeing here is a nasty bout of growing pains. In the longer run, we’d expect a sustainable bull market to take hold.
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