Posted August 31, 2014 10:09 pm by Comments

Gary Greenberg, the manager of Hermes’ emerging markets fund, has written an article for FE Trustnet where he argues that while there are a number of short-term headwinds could hamper the Chinese stock market, he also thinks current valuations and government reforms make it an interesting area for long-term investors. His article is worth reading as it covered the following topics in detail:

  1. Declining Growth. China is experiencing its slowest growth for 15 years, and may not meet its 7.5% target for 2014.
  2. Tide of debt. There are serious concerns the economy is being kept afloat on a wave of debt – credit creation has increased 16% year-on-year, more than double GDP growth.
  3. Property bubble. China over the past quarter century has become the world’s largest building site with rapid housing construction resulting in market glut and a sharp fall in housing prices.

However, Greenberg still concluded that over the long term, he believes China is on the right path but currently there is short-term pain as the market digests the new realities of the economic outlook.

It should be mentioned that his Hermes Global Emerging Markets fund has a 30.1% allocation to China, which is almost a 10.6% overweight against the MSCI Emerging Markets index. His fund is exposed to the Chinese consumer, internet user and business services user – areas which continue to grow robustly – with minimal exposure to the high-risk areas of property and banks.

To read the whole article, Chinese equities: Cheap long-term play or value trap?, go to the website of FE Trustnet.

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