Niven continued: “Based on present valuations and current activity, it is not an area that I feel comfortable chasing, but it will be a more important area going forward in terms of weights in indices.
“China equates to about 23% of emerging market exposure, which is less than 3% of our global equities and 1% of the overall portfolio. But going forward, in 12 months’ time it could easily be double that, which is quite a big single-country allocation.”
On the other side of the coin, Oliver is decidedly less-enthused, particularly given the high level of volatility within the A-share market.
“The Chinese domestic market follows a pattern,” he said. “Investors have quite a herd mentality, which is represented in how A-shares have behaved.
“As the A-share market opens up to foreign investors we might see that volatility starting to dwindle. But it is going to be a slow and gradual process, and it is difficult to analyse a market that is up more than 100% in 12 months and down 20% in two weeks – it does not function off fundamentals.”
Oliver cited the manipulative hand of the Chinese authorities as one factor that puts him off investing in the market, highlighting murkiness around China’s economic numbers as a primary concern.
“We have to be very careful about any statistics that come out of China, and there is a view that economic figures are being massaged,” he expanded. “This year China will probably be growing at its slowest pace for 25 years, which is natural, but even now the figures are underestimating how severe the slowdown has been.
“Policy-makers have made four cuts in the benchmark interest rate in the past six months, which gives a broader sense of what the Chinese authorities are concerned about. When there are doubts about how economic figures are being presented at a time when markets are behaving as they are, how can you invest?”
So how does Oliver gain access to his relatively-small Chinese weighting, which makes up 5% of his medium-risk portfolio.
He said: “The only way we feel comfortable investing in China at the moment is through local Asian funds, with managers on the ground who know about the companies they are investing in.
“[Our China weighting] is predominantly through First State Asia Pacific Leaders, which has done well, and we also have BlackRock Asian Growth Leaders.”
