Anthony Bolton, Fidelity Worldwide Investment
The next 12 months should be a defining moment for Chinese investment when investors realise the economy is not about to collapse and the tightening period is over.
We have been through an extraordinarily volatile year but I believe that when the dust settles and things calm down, investors will focus on relative growth rates they can get in different parts of the world. I feel very strongly that this will result in money flowing out of developed markets that have sovereign debt problems and very mediocre prospects over the next few years into the faster growing emerging markets like China.
I am not saying that China is not immune to a slowdown in the developed markets. The country’s growth rate will slow down but it will still expand by about 7.5pc to 8pc, which will be very attractive compared to the rest of the world.
Inflation has been a key issue in 2011 but it has already started to come down. A slowdown in inflation has allowed the Chinese authorities to stop tightening monetary policy. This should be positive for the markets. The speed and format of further loosening will depend partially on how the domestic situation develops from here and whether the developed world returns to recession.
Some of the other issues that investors in China have been focusing on are bank bad debts and falling residential property prices. There are some real challenges regarding potential future bad debts but the government has the financial resources to address these. The outlook for residential property in 2012 is poor. I also am more concerned about the uncertainty due to the important political changes that are due over the next 18 months and whether they will lead to a change in policy direction.
In terms of portfolio strategy going forward, I continue to be positive on the consumption and services sectors and remain underweight in exporters, commodities, infrastructure companies, banks and property companies. Consumption and services are not immune to any slowdown in China but I believe these are the areas with the best longer term outlook where structural trends favour them.
Even with a slowdown in GDP growth, I expect these areas to outperform the general economy. If I am wrong about the world outlook, and a new recession were to commence leading to China embarking on another stimulus programme, these areas would likely be direct beneficiaries.
Tom Becket, PSigma Investment Management
What's next for China is the biggest question for next year and never has the outlook for China been more uncertain. Recent trade data from some of the export-focused emerging market economies have been suggestive of a more macabre economic slowdown than many originally expected.
Indeed conditions have deteriorated sufficiently during recent months in China that the inflation-obsessed authorities there have been forced to start loosening their grips on credit creation, in order to try to allow economic growth to pickup once again. In doing so, they have joined many other global central banks in loosening policy in an attempt to kick-start their faltering economies.
We expect China to start cutting interest rates in the New Year and we are also watching anxiously for signs of a pro-growth policy switch, as we move towards a government reshuffle in 2013. Next year we expect the Chinese economy to grow, but the pace to weaken from this year and this will add to the global uncertainty.
Chinese investments have been disastrous this year, but could well benefit from a sentiment change as interest rates are cut. Like every other forecast for next year, there are almost an unprecedented number of risks to this expectation.
Tim Cockerill, Rowan Dartington
With subdued growth in Europe and the US China’s growth will be impacted. Yes, the domestic market is growing but not quickly enough to take up the likely slack, so economic output will probably fall. China won’t experience a recession but growth slowing to 6-7pc will be uncomfortable.
The Government may try and stimulate growth as it did in 2008 but this is not a long-term solution – debt levels are growing. The property market is reportedly in trouble, at least in some regions where a speculative bubbles have developed, a correction here is probably due and whilst it won’t be fatal the impacts could be widely felt.
Social unrest is rarely reported but it is growing as the gap between rich and poor has widened. This is a concern for the Government and spending on ‘policing’ is higher than on the Red Army. As the Arab Spring has shown change will come, but perhaps not in 2012.
China is a strong long term story but can be a tricky market to invest in, so even the best and most experienced can be caught out. I think there will be an opportunity to buy when prices are low, but with caution, perhaps building a position over time. soure http://www.telegraph.co.uk
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