Investment - Articles - A selection of new views on investment markets


A selection of new views on investment markets from Baring Asset management

 Easing inflationary pressures and solid growth mean positive outlook for Chinese equities, says Agnes Deng.

 Barings believes that China is, relative to other economies, advanced in its cycle of rate rises and expects inflationary pressures to moderate towards the end of 2011. Chinese growth will also continue to be strong, with the International Monetary Fund predicting Chinese economic growth of 9.6% in 2011, followed by 9.5% in 2012, significantly ahead of the growth offered by other major economies. 

 Agnes Deng, Head of Hong Kong China equities at Barings and Investment Manager of the US$4.4bn Baring Hong Kong China Fund commented, "As inflationary pressures gradually ease and markets become less fixated with policy moves, we believe that earnings growth will once again become the principal driver of Chinese equities over the coming months. In this environment, we expect our commitment to companies with good growth prospects and strong balance sheets to reward investors over time. If inflation does peak over the second half of the year, then we would also look to reduce our position in rate-sensitive markets such as banks and property, sectors where performance has been constrained over the past year by the direction of monetary policy.

 "While policy risk remains a factor in China, we believe this also presents opportunities for long-term investors, as valuations are attractive both in absolute terms and, in our view, relative to other markets. We continue to favour secular growth themes, particularly in the consumer and industrials sectors, and the key holdings in our portfolio are those which we think are likely to be less affected by rising inflationary pressures and policy measures. In this regard, we expect to see strong capital spending growth. Machinery and textiles are likely to be the first in line to benefit from net spending as they seek to improve productivity levels."

 Agnes concludes: "We maintain that the economic prospects for China remain stronger than currently priced into the market, as share price valuations remain at the lower end of the historical range. As such we believe the recent weakness in the market represents a compelling opportunity for investors to participate in a multi year growth story at an attractive entry level. Finally, the economy is on track to overtake the US as the world's largest producer of manufactured goods and is already the second largest economy having surpassed Japan.

 As of June 30 2011, Baring Hong Kong China Fund was 1st quartile year to date with a return of +2.20% in US dollar terms, ahead of the benchmark MSCI China Index (+1.09%). For 1 year, the Fund produced +15.8% in US dollar terms, versus the benchmark MSCI China Index (+12.7)*. 

 GLOBAL EMERGING MARKETS CONTINUE TO LOOK ATTRACTIVE, SAYS ROBERTO LAMPL

 Roberto Lampl, Head of Global Emerging Equities at Barings, says of his current investment outlook:  "We have tilted our Global Emerging Equity portfolios towards more domestically-focused economies and markets, and away from the more export-led markets for a number of months now, in the belief that we have entered a period of weaker economic growth. This has led us to decrease our exposure to globally exposed economies and markets such as Taiwan and Korea, in favour of domestically oriented companies in China, India and Russia.

 "In environments of heightened volatility, we believe it is important to retain the discipline of our investment process, to avoid the danger of reacting to the latest headlines. For emerging markets, this is based on the analysis of five factors which we believe are crucial to any analysis of a market or stock - Growth, Liquidity, Currency, Management and Valuation (GLCMV).

 "As such, we believe that our portfolios are well positioned for the current investment environment, where countries influenced by domestic factors should outperform the more global cyclical countries.

 While we have not made significant changes in the very short term, since the current volatility started, we have been continuing to monitor macroeconomic and corporate developments closely, and stand ready to take advantage of any emerging investment opportunities as valuations permit."

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