Richard Wong, the manager of the $3 billion (£1.9 billion) HSBC Chinese Equity fund, expects the Chinese market to rebound in the second half of the year as the Chinese government starts to ease credit tightening.
Last month the government announced a Rmb682 billion (£64 billion) infrastructure plan for 23 projects in western China, which Wong says is a sign that China is changing its tone on credit.
“These projects form part of the government’s plan to improve infrastructure in the area to facilitate more investment inflow into the region and promote economic prosperity and help lift the country’s overall income level,” says Wong.
Wong notes that while the western development plan is not a new initiative, new projects indicate the government is less hawkish on credit.
“We interpret this as a sign that the administration is easing some of the tightening,” he adds. (article continues below)
At the same time he says the infrastructure project will boost demand for construction materials. As income in the region rises, consumption demand will strengthen, he adds.
Wong says the announced infrastructure projects should also ease concerns of a slowdown in fixed asset investment, given that many of the projects will span over three to five years.
Meanwhile, despite inflation reaching 3.1% in May this year, Wong does not forecast the People’s Bank of China will raise interest rates in the second half of the year.
Having slowed to 2.9% in June Wong is confident inflation will start to ease in the second half of the year.
“If we look at the inflation figures, non-food CPI is only at 1.6%, meaning the bulk of the inflation pressure has been coming from the rise in food prices,” he says. “We are seeing food price inflation coming off in July. Therefore, there is not much pressure in the second half to increase interest rates as we believe inflation has peaked.”