“In the very short term, the combination of profit-taking to invest in new issuance after the strong run we have seen [in indices] and the potential for tighter controls on margin financing could see a continuation of the market volatility we have seen in recent weeks,” Luo said.
“After a very strong start to the year, with the MSCI China Index up 22.8% in the four months to 6 May, in US dollar terms, we think the recent pullback in the market represents an attractive opportunity.”
Over the mid-to-long term, the government’s measures to ease policy and expedite reforms should be supportive of both cyclical and structural growth prospects.
Luo finds some of her investment themes coming from the reform of state-owned enterprises and the banking sector.
“Measures to improve the return-on-capital at state-owned enterprises while opening them up to reform, to support the private sector and to encourage further financial sector liberalisation will, in the long term, have a profound effect on China as it prepares for potential recognition as a market economy by the WTO in 2016.”
Some other investment themes are in infrastructure companies, including those that aim to reduce environmental pollution. She also likes the domestic consumption theme, which includes tourism, healthcare and education.
“We like domestic consumption, where people are spending a little more to raise their quality of life. These are incremental changes, but cumulatively very important as average income rises.”
In China, she seeks companies that have strong prospects for long-term earnings growth and unrealised value in the share price, she added.
