Looking at the Asia-Pacific region we should be wary of the high allocation to China in regional benchmarks such as the FTSE AW Asia Pacific ex Japan index given that China is not driven by financial market returns, but rather by societal goals. Indeed, many investors have denounced China as being “uninvestable” – and an exodus of capital from Chinese equites led to one formerly high growth e-commerce company trading at valuations no better than that of an equivalent Chinese state-owned enterprise.
Some investors might now be hopeful that the worst is behind us and are therefore looking to benefit from a bounce in Chinese equities on the proviso of policy support. We believe that this may be a poor strategy for long-term investment in Asian equities. Successfully capitalising on a market rebound and second-guessing the beneficiaries of Chinese economic and regulatory policies is not likely to be a repeatable process over the long term in our view.
China’s relationship with Russia also increases the geopolitical risk of investing in China – particularly the risk of sanctions at any given time.
Zoe Kan, portfolio manager, Newton Investment Management.
Doc ID: 1002927