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Plenty of avenues in volatile China

China's equity markets are expected to be volatile, but opportunities can still be found in select sectors, said Helen Zhu, head of China equities at BlackRock.

BlackRock finds opportunities in state-owned enterprises that are positioned to streamline and become more productive, in line with government reform measures.

“SOE reform will provide a number of opportunities that we haven’t seen before, in terms of improving efficiencies and properly aligning management incentives.”

BlackRock also cited potential investment targets in companies that are expected to benefit from government measures to reorient exports from low-end manufacturing toward products with some intellectual property.

The property market, however, remains a risk factor, she said.

“The policymakers are making efforts to engineer a soft landing, but given the fragmented nature of this sector in terms of both demand (buyers) and supply (developers), top down control is more challenging than for some other areas of the economy.”

Meanwhile, Zhu said domestic retail investors have started to shift their asset allocation away from property and shadow banking and back toward equities and insurance products.  

“We will see further sector rotation and more selective buying. Nearer-term, we see an opportunity for H-shares to catch up on their domestic counterparts as well.” 

A few other fund houses, such as Old Global Mutual Investors and Deutsche Asset & Wealth Management, are also seeing opportunities unfolding in the H-share segment.

Andrew Swan, head of Asian equities at BlackRock, said any instances of volatility in the market should be viewed as an opportunity to invest.

“We do see a weaker period for growth ahead as high real interest rates are restraining activity. In such an environment, policymakers will have to act decisively to avoid being behind the curve. 

“While we believe policymakers have an impressive arsenal of tools, we may see some periods of volatility emerge once major loosening occurs. This should be viewed as an opportunity.”


Part of the Mark Allen Group.