Investors’ perceptions of China are not keeping up with the facts, according to leading economist and a keen observer of the world’s second largest economy.
Olga Bitel, the Chicago-based economist at William Blair, contests the accuracy of widespread gloomier economic forecasts for China, particularly in light of bad loans and the decline in purchases of property.
At the Fiduciary Investors Symposium, she cited quotes from the senior executives at Apple, Nike and Starbucks made in October, which all attested to strong sales growth in the country.
She also takes encouragement from the growing modernisation of Chinese industry and the impact of government deregulation on the economy.
“I feel that if I do not go to China 2-3 times a year, I fall behind. The changes are that profound,” she said.
She summed up the changes as taking China from being seen as a consumer of raw materials to a competitor in hi-tech products.
“There is a movement up the value chain,” she said. “There are pockets of industrial sectors doing better than developed world competitors – Chinese corporates in the industrial space are starting to compete directly with competitors in countries such as Japan, Germany, Korea.”
She singled out the auto-sector as one that was benefiting from higher standards of production. “The massive premium for western brands will erode as there is a catch in quality of products,” she said.
Delegates at the conference heard of another view on investor perceptions of China. Kunal Ghosh, global chief investment officer equities and head of research at Allianz, saw a divergence between the largely negative views of China, he heard while work in his firm’s US office in San Diego and the more upbeat views he heard while at work in Singapore.
“The US investment community is almost rooting for China’s failure, whereas in Asia and this part of the world they are watching the re-balancing process and they are much more optimistic,” he said.
He accepted that Chinese banks would take some pain by writing off some loans on their book, but took heart from what he described as “micro indicators” such as retail sales outstripping fixed asset investment for the first time in five years. This, he said, shows the economy was re-balancing according to the government plans.
Also at the conference, Rick Wurster, asset allocation portfolio manager at Wellington Management, made the case for Japan to delegates, as one of four areas of value he identified for investors, including inflation linked bonds, non-US small caps and Europe.
His faith in Japan is based on the improving financial discipline of Japanese companies, linked to the shift in the majority ownership structure of Japanese companies from domestic investors to global investors.
