Hani Redha, portfolio manager for global multi-asset at PineBridge Investments, said he is “not surprised” by how the momentum from China’s reopening has begun to fade as he touted the prospects for the Middle Kingdom.
“We had a burst of growth as we initially reopened the economy and then we’ve seen a bit of a consolidation in that rate of growth. That has come as a disappointment to some market participants,” he said at the investment manager’s mid-year outlook, entitled ‘Go East: Shifting Allocations from West to East’.
“What we would say at PineBridge is we’re not surprised by that as we were not expecting a super strong cyclical upturn, driven by very strong stimulus like we’ve seen in the past…The recovery is maybe not as exciting as we would like it to be but it’s still early stage. Most importantly, we see policy being on the supportive side as opposed to being restrictive.”
His comments come as a number of other investment managers have begun to lose patience with China as the reopening rally has faded. Earlier this month, DWS’ global chief investment officer, Bjoern Jesch, downgraded his outlook on emerging market stocks to neutral, citing China’s slow recovery following its reopening as the main factor.
Similarly, last month, Pictet Asset Management downgraded its outlook on China equities to neutral from overweight, stating that the country’s reopening rally had “not quite lived up to expectations”.
Redha pointed out that even though Chinese regulators were unlikely to flood the system with liquidity, policy remained supportive, in contrast to most of the rest of the world. He also added that unlike most other countries that rely entirely on fiscal and monetary policy, China also had regulatory policy as a lever and there are signs that the regulatory clampdown on the tech sector in the past few years is beginning to ease.
Overall, Redha made the case for emerging markets, particularly Asia, where there were fewer headwinds, while China’s easing policy environment would have a halo effect on a number of other countries in the region, he said.
He also spoke about the structural tailwinds underpinning a number of markets in the region, such as India.
“India is really our standout positive structural story that will benefit on a multi-year basis. That’s another market we would pay attention to and is a very good complement exposure to China as well. We find that these markets are uncorrelated to each other so together they can actually make a pretty interesting portfolio construction,” he said.
He also echoed a number of other asset allocators in talking up the prospects of fixed income.
“Overall, what we find is that fixed income has actually become relatively attractive compared to the last cycle and that also applies to Asia as well, where we find Asia credit is actually a very interesting allocation in a multi-asset portfolio because of how high yields have reached. The starting level of yields is very positive,” he said.
