Axa Investment Management’s Aidan Yao thinks the country’s property market is in particular danger, saying that it is “constrained by an oversupply of housing, tight credit conditions for developers and the government’s anti-corruption agenda”.
He thinks a correction of 10 per cent in China’s housing market could result in a 2 per cent drop in the nation’s GDP.
However, Mr Yao thinks policy easing from the Chinese government with mitigate the worst of the correction, much as many observers think the government has the capability to avoid the worst of the problems that could be generated by the shadow banking system.
The impact of these fears has seen the stock market decline this year to reach a very low valuation, around 9 times price to earnings (p/e) according to one measure.
That valuation is skewed by a number of state-owned enterprises on its exchange that are always on a low p/e number, but the bearish conditions are beginning to win round investors that were previously hesitant about China.
The well-respected Asia and emerging market equities First State Stewart team recently visited China and, in an update to investors, the team said the slowdown in growth in China had made the companies there begin to think more seriously about how to improve their businesses.
First State said companies in sectors such as healthcare and consumer goods were now beginning to innovate and, while China has historically had relatively few multinational companies, the “global footprint of the country’s multinational companies is growing”. The team claims “this should make the next few years interesting from an investor’s perspective”.
While China is likely to continue to influence the world through its consumption of commodities, it is increasingly exerting weight through the power of its consumers and the improving strength of its business.
Whether an investor looks to access that through Western companies, investing in Asia as a whole or through the cheap Chinese market itself, it will prove hard to ignore China through the next decade.
