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Deutsche Wealth defends plunging Chinese equities

The bank also plans to increase ESG investments, according to senior executives.
Tuan Huynh, Deutsche Bank Wealth Management
Tuan Huynh, Deutsche Bank Wealth Management

The trade war between China and the US is one of the key risks that the bank is monitoring, Christian Nolting, global chief investment officer and global head of discretionary portfolio management, said at a recent event in Hong Kong.

“The GDP numbers of China probably is one of the most important economic factors this year, because the question is if there is a massive slowdown coming.”

In the worst case scenario, the trade war could cost around 0.5% of China’s GDP, he said.

However, the bank expects that this will be offset by additional stimulus coming from China.

“We have seen discussions about tax reforms and we think there will be more RRR [bank cash reserve requirement] cuts. We also expect a cut on the value-added tax,” Nolting said.

Combining all stimulus measures should add around 0.5% to China’s GDP, explained Tuan Huynh, chief investment officer and head of discretionary portfolio management for emerging markets.

“There is still ammunition left from the Chinese governments, and it will do everything it can to manage the growth to be above 6%,” he said during the same event. The bank expects that China’s GDP this year will be at 6%, which is below market consensus, he added.

The added stimulus should be good for Chinese equities.

“Of course their performance was negative [last year], but you didn’t see any under-performance anymore during the fourth quarter when compared to US and European equities,” Nolting said.


4Q 2018

YTD 2019

MSCI China




MSCI AC Europe




S&P 500




Source: FE Analytics

Valuations have also corrected, which makes the asset class more attractive.

In a recent note to clients, Eric Moffett, portfolio manager at T Rowe Price, underscored the point: “Indiscriminate stock selling by local investors on the back of trade tensions with the US have left China’s A-share market trading at less than ten times earnings compared to 16 times a year ago.”

Huynh added that multiples have come down to a level that the bank thinks is “extremely attractive”.

ESG, a neutral factor

The bank is also adding ESG as one of its investment themes for this year.

“ESG is not a massive topic in Asia at this point. But globally, ESG assets are already around $22trn,” Nolting said.

Europe leads in investments with $12trn in ESG assets, followed by the US ($8trn) and Canada ($1bn). Asia ex-Japan is way behind globally, with a mere $52bn in ESG assets, according to Nolting.

Nolting also believes that ESG has no impact on performance.

“It’s neither massively increasing performance nor taking performance out. So it makes sense to look into this from an investment point of view.”

Separately, Markus Mueller, global head of chief investment office, noted that this is not the first time that the firm is managing ESG solutions for its clients.

“Our wealth discretionary business has been managing ESG solutions in the past with specialised teams, mainly in Germany and Italy. However, it is now that we explicitly include it into our yearly outlook,” he explained.

Mueller added that in terms of ESG investments, the bank will look at a variety of asset classes.

The bank also plans a global project that aims to expand its own ESG research, he said, but did not elaborate.

Part of the Mark Allen Group.