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Matthews Asia sees likely US-China deal

China could cope with a full-blown trade war with the US, but a deal is likely by year-end, argues Andy Rothman.
Andy Rothman, Matthews Asia

“Chinese policymakers and economists in Beijing tell me that they have a backup plan. If the tariff dispute blows up into a full-blown trade war with the US, they’re prepared to undertake a fiscal stimulus to try and compensate for it,” Andy Rothman, investment strategist at Matthews Asia, wrote in a recent report.

“I think they can be successful and we’ve seen this before.”

Measures might include policies that would mitigate unemployment, restore consumer sentiment and rebuild investment confidence.

While exports are significant for China, they are not the most important part of its economy, according to Rothman.

“However, [the trade dispute] puts more pressure on China to move ahead more rapidly with reforms, not only in the financial sector but also in the rest of the economy.” he added.

“In order to make sure that the domestic-demand side of its economy continues to thrive, China is going to have to push ahead with reforms even more quickly.

“We have seen steps toward that already. China has cut tariffs and improved market access for companies from countries other than the US,” he said.

In fact, Rothman, retains his bullish view on China, shared with FSA two years ago, and is optimistic about the ability of Chinese companies that focus on domestic demand to withstand the effects of the trade dispute.

That said, he added: “I do think there will be a deal between President Trump and President Xi by the end of the year.”

Strategy implications

The nervousness and uncertainty provides investors with opportunities, according to Robert Horrocks, Matthews Asia’s chief investment officer.

“Dampened sentiment can lead to buying opportunities of quality companies with solid management teams that can capture the attractive growth potential of the region,” he said.

He added that as long-term Asia investors, the firm likes to buy when sentiment is weak, because it focuses on how companies will perform over a full economic cycle.

“Chinese equity valuations relative to the US currently seem to be at the bottom of their historical range. So we find this an exciting time to invest in the region,” he added.

Matthews Asia manages three China-focused products, authorised for sale in Hong Kong and Singapore. These include the Matthews China Fund, Matthews China Dividend Fund and Matthews China Small Companies Fund, which have all outperformed their benchmarks and sector averages over three years, according to FE Analytics data.


Matthews Asia China funds vs the category average and benchmark

Source: FE. In US dollars. The two funds use the same benchmark.

 

 

Part of the Bonhill Group.