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Comment: Faltering economic growth in China

Aoifinn Devitt, Portfolio Manager of the City Financial Asian Absolute Growth Fund, comments on faltering economic growth in China…

“Pre-emptive moves by the Chinese government to contain inflation, via both interest rates and RRR hikes, are starting to bite. Although the investment managers that we follow would agree that it is too early to declare victory over inflation in the country.
“Latest manufacturing figures indicate that growth momentum, while more subdued than before, remains strong and they are likely to give cheer to investors who have become considerably more concerned regarding the sustainability of that growth, leading Chinese markets to lag their global counterparts over recent months.
“Pre-emptive tightening initiated by the government is not and cannot be a one-way street for China.  In April  the National People’s Congress announced the 12th Five Year Plan, which involves important stimulus measures in the areas of social housing and sustainable energy production, as well as water delivery programs. Among investors, this had led to momentum-buying in the construction and basic materials sectors, where earnings growth has also been strong. In keeping with the global interest in technology and social networking, Chinese internet and technology stocks have participated meaningfully in the current wave of buying, and any “bubble” that is retrospectively seen to have existed.  Our managers are cautiously positioned on both sides of these phenomena – long the stalwarts, but short some of the less proven but hyped names.  Their exposure is also particularly broad, with many gaining Chinese exposure through multiple markets such as Hong Kong, Taiwan, US GDRs as well as A and B shares. This suggests that a shift in a growth forecast will not be felt on the bottom line for these managers – they are more focused on the minutiae of the earnings for companies in the thick of things.”

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