Rising property prices, more rate hikes from the Federal Reserve, higher inflation and shrinking Chinese export markets have created “the perfect storm” for Chinese growth to disappoint, said Pidcock.
With all these factors weighing upon the region, “I can’t see how China can be a fast-growing economy next year,” he stated.
“Each year the demographics make things a little bit more challenging in the region.
“That’s why I think China is close to the point Japan reached in the early 90’s, when the growth rate moved down a notch and then plateaued.”
There has been “anecdotal evidence” pointing to a credit bubble, he said, but Pidcock thinks the real risk is China’s ballooning property prices.
If the bubble bursts next year, it will have “knockdown effects felt around the world” on commodities and mining prices, which Pidcock thinks have put their “best times behind them” after rallying over the last half of 2016.
Because of this, he has reduced his overweight to Australian dollar denominated equities from 33% to 28.5% and beefed up his cash levels to the 3% maximum he’s allowed to hold.
“The Australian dollar is one of the strongest currencies in the world but going forward, I wanted to take a little bit off the table.”
Though Pidcock stresses this will not be a story until around this time next year, he cautions that “stock markets have to try and price that in before the event.
“I’m very happy to be underweight China at the moment.”
