Mandy Chan, head of China and Hong Kong equities, said that the Chinese government’s blueprint for development for 2016-2020, released last week, underscores innovation and technology as a primary focus.
“For instance, Beijing will launch new national science and technology programmes and help develop internationally competitive high-innovation enterprises,” Chan wrote in a recent research note.
“In addition, China’s industrial base will be upgraded to transform China’s manufacturing capability.
“Online financing will be one of the bright spots and the momentum is expected to gather pace.”
She added that the firm is overweight the sector ahead of the MSCI rebalancing in May, when IT will see its weighting on the index rise on the back of full ADR inclusion.
Short vs long bonds
The Chinese government has a GDP growth target of 6.5%-7% for 2016 compared to the 6.9% growth in 2015. However, slower economic growth is viewed as positive for some fixed income instruments because slower growth should benefit bonds in general, said Gregory Suen, the firm’s investment director of fixed income.
“We believe the outlook for onshore bonds remains quite stable,” he said.
But the firm has been reducing duration in onshore RMB bond portfolios.
Onshore government bond issuance is expected to increase in order to fund higher fiscal spending due to a wider fiscal deficit and this is expected to put pressure on the long end of the yield curve, he said.
“We will look to continue reducing our duration exposure, taking profit from our positions, especially as we expect the yield curve to steepen as a result of increased supply, while loose monetary policy tends to benefit the short end of the curve more directly.”
In terms of onshore corporate debt, Chinese authorities themselves have recently raised concerns.
“Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” People’s Bank of China governor Zhou Xiaochuan was quoted as saying in a Bloomberg report.
