Have commentators been too quick to write off China, which remains the world’s largest economy? Will the year of the Dragon bring a return of fortunes for China? Here four commentators give their views.

It’s been a challenging twelve months for China and Asia-Pacific focussed investment companies. As Chinese New Year approaches on 23 January 2012, the year of the dragon, it seems fitting that the Chinese consider the dragon unpredictable, although for centuries the dragon has also been considered one of the luckiest signs of the zodiac. Have commentators been too quick to write off China, which remains the world’s largest economy, and is still experiencing strong growth compared to Western economies? Will the year of the Dragon bring a return of fortunes for China? Here four China-oritented fund managers and members of The Association of Investment Companies, give their views on the outlook for China.

China undervalued?

Howard Wang, manager of the JPMorgan Chinese Investment Trust

“We believe that very attractive opportunities exist in the Greater China markets in 2012. This is particularly true for China, which is trading below Global Financial Crisis lows in valuation terms and where earnings revisions have been surprisingly stable despite negative news from around the world. With the recent loosening of liquidity in China, we believe there is an opportunity to recapture gains in stocks and performance lost during the crisis-like atmosphere in 2011.

“We expect markets to remain volatile though the risks of a hard landing in China should ease, supported by more flexible policies given less inflation pressure. We believe the CPI reading will continue to soften in the next few months, while growth could return as China’s policy priority is to ensure social stability as well as a smooth leadership transition.”

Andy Beal, manager, Henderson TR Pacific Investment Trust

“We’re generally constructive on the Chinese economy in 2012. Inflation has been the main preoccupation of Chinese policymakers over the last 18 months and we expect a sharp drop in headline inflation rates in the coming months. Economic growth is also slowing, mainly as a result of government tightening measures to control inflation and the property market in 2010/2011.

“Lower growth and inflation will allow easier policy and is likely to be positive for the Chinese equity markets particularly given their sharp under-performance since the tightening cycle began in mid-2010. We do not subscribe to the view that China faces an imminent economic Armageddon. There are undoubtedly some significant structural issues facing the economy, which is to be expected in a country that is still heavily influenced by State planning and has only partially transitioned towards a more market led economic model. We expect steady progress to address these structural issues and believe that the government retains significant fiscal and monetary fire power to move aggressively to protect the economy from the impact of the Eurozone crisis or a weaker US economy.”


Andrew Gillan, manager, Edinburgh Dragon Trust

"It has become clear that almost nowhere is immune from the debt problems in Europe and the US. Until real progress is made by politicians in the West, Asian markets including China could well remain weak. In China's case poor performance these past two years has followed tighter domestic money, the market being driven more by liquidity than fundamentals.


"Whether this weakness persists depends now on the authorities' ability to engineer a soft landing.  Slower land sales and souring loan books are evidence that the property boom is over. Battered export markets make the slowdown worse. While Beijing has room to stimulate if need be, the climate for earnings has worsened and mainland valuations are not compelling, unlike those in Hong Kong where we find value.


"None of these developments diminish the importance of China to the world economy. On the contrary, China will still be growing strongly compared to Western economies. Its share of world demand in everything from commodities to capital goods is so large that other economies' dependency on it will only increase.”

Mark Mobius, manager, TEMIT 

“With a consumer base of 1.3 billion people, consumerism thus has been flourishing in China. Foreign direct investment continues to grow as international investors remain attracted to China's booming economy. Its foreign reserves are also the largest in the world, making it less vulnerable to external financial shocks.

“China remains one of the fastest growing major economies in the world. During the last quarter, inflationary pressures continued to ease and the industrial sector continued to record strong growth.  In January 2011, China started allowing its domestic companies to use the renminbi for overseas investments. That was regarded as the next step in a series of measures that China has put in place over the past few years to internationalise the renminbi. Despite global reservations stemming from China’s status as a developing country and its cautious approach to monetary policy, it is very possible that the renminbi could become a global reserve currency by 2020. If that occurs, it would further cement China’s prominence on the global economic stage. The renminbi might potentially replace the role of the Japanese yen, given that its usage was driven by Japan’s former economic dominance.”