What do fund managers make of China’s 19th party congress?


The 19th Standing Committee of the National People’s Congress is set see Xi Jinping’s power consolidated, but emerging market and Asia fund managers are divided on the economic and market outcomes from the highly anticipated political event.

Xi’s ascendency to the presidency began at the last party congress, which is held every five years. There is likely to be a large churn of leadership at the Beijing meeting, with many officials likely to retire.

Xi’s “already burgeoning power” is likely to be consolidated further, says Nordea senior macro strategist Witold Bahrke.

The economic impact, while all important, will probably not be clear before early next year.”

Bahrke reckons the global cyclical situation hinges more on China than ever before.

“Debt will continue to grow, albeit with a changing composition. We expect growth to slow, without falling off a cliff,” says Bahrke, noting leadership will be focused on short-term concerns rather than long-term reforms. 

Hermes head of emerging markets Gary Greenberg says they have a moderate overweight on China. 

The outlook for China in the medium to long-term is better than the bears think, despite the fact China has been growing on the back of debt.

“The authorities have done a good job of reducing the external portion of the debt, so US rates will have to rise over 150 basis points to expose the Chinese economy.”

Environmental-related sectors, like electric vehicles, nuclear, solar and wind power, may receive a boost, says Craig Farley, lead manager of the Ashburton Chindia Equity fund.

China is aiming to double living standards in the decade leading up to 2020.

Expect anti-pollution measures to continue featuring high on the priorities of the officials,” says Farley. “Urban infrastructure will also be radically industrialised to make cities more liveable.”

T Rowe Price Asian Opportunities Equity fund manager Eric Moffett says if Xi can push through reforms of state-owned enterprises, many of the companies regularly dismissed by foreign investors will come back into focus.

“The authorities are already testing reforms, with China Unicom being one of the companies undergoing significant reform,” Moffett says.

“We have in recent years seen improved management discipline in China, with businesses now throwing off a lot of free cash flow after significantly cutting unnecessary capex.

“It is a complete reversal of what we witnessed five or so years ago and we believe the boom in free cash flow is still underappreciated and undervalued by the market.”