China will continue its impressive growth rate beyond the Beijing Olympics provided the developed world sidesteps recessions, PSigma believes.
PSigma investment strategy director Thomas Becket says the impact of a global slowdown on emerging markets is the dominate investor issue at the beginning of 2008.
Becket singled out China as the most important of the emerging economies and the key to ongoing returns.
“The domestic consumer is by far the most potent driving force behind China’s progress, and we struggle to envisage any imminent threat to hinder this,” Becket says.
“Fears about an overheating economy are overdone in our opinion, and we believe that the Chinese authorities will continue to manage the relationship between inflation and interest rates sensibly.
“As long as recession in the developed world is averted by the loosening of monetary policy by central banks, China will continue its impressive pace of development up to and beyond the Beijing Olympics.”
However, Becket explained he is cautious on the levels local Chinese markets are currently trading at. He says PSigma has reined back overweight positions in anticipation of a more attractive entry point.
“Had it not been for the excellent returns from the mining and oil sectors, which have been driven up because of the current levels and future expectations of Chinese demand,” Becket says.
“Currently, the best and potentially least risky method of benefiting from the China theme is by investing in high-quality western companies, which have largely underperformed Asian equities over the past four years and are generating healthy profits from the emergence of the Chinese consumer.”
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