This article first appeared in The Edge.
China’s financial markets have performed significantly well over the last 12 months.
Yet there may still be investment opportunities to be grabbed, according to Gian Plebani, portfolio manager of the UBS China multi-asset strategy.
From a valuation perspective, Plebani notes that China’s equity market is relatively inexpensive compared to the US equity market.
And when compared to bonds, Chinese equities are even cheaper, he adds.
“Therefore, we still think there is a lot of attractiveness to the Chinese equity market,” he says at The Edge Singapore’s Fund Watch webcast on March 2.
“We expect the Chinese equity market to outperform over the next 12 months,” he adds.
Fund Watch is a new webcast series launched and run by The Edge Singapore. Each episode will explore a different fund and strategy to seek alpha for investors.
According to Plebani, the performance of the Chinese equity market will continue to be underpinned by China’s economic resilience.
Growth, he says, will be supported by China’s strong fiscal and monetary stimulus.
Moreover, the country has largely shrugged off the impact from Covid-19, thanks to its ability to contain further outbreaks of the virus.
As such, he expects China to register GDP growth of 8% this year versus the expected average global GDP growth of 5.5%.
Beyond that, the Chinese equity market will be driven by flows from international investors, both retail and institutional, Plebani says.
This is due to the “catch-up potential” arising from the disproportion of China’s GDP growth against the inclusion of its equities and bonds in global indices, he explains.
Although tensions between China and the US have yet to be resolved with an increasing focus on technology than trade, Plebani believes that the risk is manageable.
He points out that the US administration under President Joe Biden is more “predictable” than before.
Moreover, China is too big to be side-lined given its importance to the global technology supply chain.
“And therefore, there is no way large international companies can ignore China. They need to have access to this market,” he says.
Asset allocation in China
So, what is Plebani’s asset allocation in China given the opportunities and risks going forward?
He says he is starting increase exposure to offshore stocks as financial markets have rebounded from the Covid-19 impact.
Within fixed income, he prefers Chinese high yield bonds.
However, Chinese government bonds are his least preferred allocation now.
From a sector perspective, Plebani says there could be opportunities in financial, material and industrial stocks considering their cheap valuations.
“If we have a recovering economy, that's exactly the sectors that should outperform,” he says.
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