As China welcomes in the Lunar New Year, Charlie Awdry, China equities portfolio manager, talks about the impact of the recent trade deal and portfolio positioning.

    Key takeaways

  • Investors relieved about a phase one trade deal, but much work to be done in the coming years
  • Signs of a Chinese cyclical economic recovery, keeping an eye on the new coronavirus outbreak
  • We continue to be highly selective in consumer sectors, and are avoiding banks

Hi Charlie Awdry here. Co-manager of Chinese equities and I thought that as China prepares to go off for their Spring Festival holiday, it might be a good time to give you an update on what we're seeing in the economy and on the equity markets.

Well we've had a fillip of course from the resolution between the US and China on trade. They've managed to agree on the things that are simple to agree on and delay some of the more controversial issues until later this year. That could be good news for the economy, maybe a little bit of a boost from inventory restocking. We're also seeing actually already a little bit of an economic recovery as shown by manufacturing surveys seeing a little bit of an increase in fixed asset investment. So there's a nice little cyclical momentum as China goes into this holiday.

We'll see of course, how this virus outbreak plays and whether that has an impact on the economy. We don't have anything to add, or any edge on that other than to say that we hope it's not as bad as previous episodes, and we continue to watch the World Health Organization website for updates.

From a portfolio point of view, we're still very active. There are certainly areas of the market that we like, particularly focused around the consumer: consumer services, tourism, retail, internet. But there are also areas we don't like. We still don't own any Chinese bank shares despite the cyclical recovery. We see that there's quite a lot of regulatory issues there, potentially some capital raisings to fill some balance sheets as well. So we'd be highly selective in what we invest in but it’s nice to see a little bit of a cyclical recovery and some appreciation for that from investors.

So with that thank you very much and we wish you “Gong Xi Fa Cai”, and all the best for the Year of the Rat.

*References made to individual securities or sectors should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not a guide to future performance.

Glossary

Inventory restocking: increasing purchase of goods used in the production process eg. in manufacturing.

Fixed asset: a long-term tangible piece of property or equipment owned by a company used in its operations to generate income.

Cyclical recovery: economic growth that is driven by cyclical sectors ie. those that tend to rise and fall with the economic cycle. Companies in cyclical sectors usually sell discretionary items that consumers buy more of during a booming economy and less in a weakening economy.