Investment prospects in China still strong

Advisers and investors nervous about the mixed messages on China’s prospects for 2012 are being urged by Baring fund managers to stay with this market as they see the economic prospects for China as being substantially better than what’s being currently priced into the market.

Agnes Deng, Investment Manager of the Dublin-domiciled Baring Hong Kong China Fund, makes the point that as inflationary pressures gradually ease and confidence returns to equity markets, she and her team expect earnings growth will again become the principal driver of Chinese equities.

“In this environment, we expect our commitment to companies with good growth prospects and strong balance sheets, well positioned to benefit from rising consumer and infrastructure spending, to reward investors in our China equity funds. We maintain our core view that while we acknowledge that there are risks, we believe the market is being too pessimistic,” she explains.

Looking at the outlook for 2012, she says the focus will be on companies which can deliver sustainable earnings growth in the coming years, especially companies with strong balance sheets and robust cash flows. "We will selectively add to positions in these companies where we believe value has emerged during the recent market weakness."

Deng explains how her team is positioning its portfolio. "We have trimmed our position in the luxury automobile sector after a period of strong performance. We have since added some industrial companies as we are turning more positive on the resumption of government spending on fixed asset investments. We also added some internet stocks on weakness and continue to believe the earnings outlook remains resilient. Elsewhere, we are also optimistic on companies in the consumer sector, which should benefit from the government's pro-consumption policies, designed to stimulate demand and strong economic growth."

Deng backs up her optimism with the International Monetary Fund forecast for China’s economic growth to come in at 9.0% in 2012, more than double the predicted global growth rate of 4.0%.