Apollo Multi-Asset Management is optimistic about China despite the possibility of a slowdown.
Chinese growth has been driven by infrastructure investment and exports in the last few years but Apollo feels this is unsustainable in the long term. It says there are concerns about a hard landing for China, which could see an economic slowdown and a fall into recession.
Poor car sales, falling steel production, a slowdown in manufacturing, falling house prices and a sell-off in equity markets can be taken as evidence that China is moving this way.
Apollo is optimistic, however, because it feels the country has plenty of options if the situation worsens, unlike the heavily indebted countries in the West. It feels China’s wealth and the way it has been raising interest rates to control inflation give it scope to reduce interest rates to ease the current situation.
But it believes the Chinese economy needs to shift towards domestic consumption. This will not be an easy transition but Apollo thinks it is within China’s capabilities due to the country’s strong demographic growth, full employment and wage growth.
The company is holding the Coupland Cardiff Asian evolution fund, which invests in 20 to 40 Asian consumer stocks, to play out its long-term view of Asian domestic economy.
Fund manager Tom McGrath says: “This specialist, actively managed fund has provided us with the specific type of exposure we desired and has the distinct advantage of a locally based fund manager, who we rate very highly in this field.