“Regarding risks related to China, it’s not about the expectation of a hard landing [for the economy], but bad management of reform implementation,” Defend told FSA.
Investors grew concerned over poor communication from the Chinese authorities regarding their policy implementation.
For example, in 2015, Chinese regulators changed the rules on the use of borrowed money for trading in a move to encourage participation by domestic retail investors in China’s markets. This led to a massive sell-off and strong volatility that spread across global markets.
The China Securities Regulatory Commission has also been criticised by international investors for what appeared to be haphazard market intervention, such as imposing new rules on selling positions in stocks, seeking scapegoats for the market plunge, and applying a “circuit breaker” on its stocks markets, then removing it only after four days of implementation due to unsatisfactory results.
Events in China no longer affect only regional markets. “China is a global risk,” she added.
Regarding the outlook for the renminbi, which has an impact on other Asian currencies, Defend said she is not expecting any further depreciation. She does not expect the US Federal Reserve to aggressively increase interest rates during the year, which should help provide some support to the regional currencies.
In terms of exposure, the firm is long on China’s new economy sectors and is avoiding state-owned enterprises and banks, which are considered part of the old economy.
She remains cautious on global markets and expects a “low-low” scenario, meaning low growth and low inflation.
“We are expecting fiscal policies to support supply-side measures for investments. Within this framework, we have decided to concentrate our risk and take exposure to credit and investment grade bonds.”
Pioneer has also been trying to enlarge its investment universe by investing in alternative asset classes for diversification purposes, she said.
As of the end of March, the firm has assets under management in Asia at around $67.2bn, Defend said, but she declined to give a concrete target for growth.
