Newsletter guru Jim Oberweis, whose China fund is in the top 1% of funds in its class over the past one, three, and five years, according to Morningstar, says investors look at China the wrong way.
Top U.K. fund manager Anthony Bolton says he’s expecting a rebound in Chinese growth next year.
Bolton tells Investment Week that he thinks China’s growth has actually been slower than the official 7.5% figure being cited this year. “The headline figure is not reliable and I think growth has come down below that this year,” he says. But he sees better growth in 2013, and says that economic improvements and the fact that China’s elections are over should help spur Chinese stocks next year.
“The bear market will change soon in the A share market,” he said. “The economic cycle is now in its favour, as is the political process.”
Sectors that Bolton was high on in 2012, including healthcare and consumer discretionary stocks, struggled. But he’s sticking with them heading into 2013, expecting that the changing conditions will lead to bounce-backs.
Templeton Emerging Markets Group’s Mark Mobius says he’s bullish on Chinese coal companies.
“These companies are not only mining but also producing power and the demand for power is insatiable in China and everywhere else in the world,” Mobius tells Bloomberg. His funds currently hold shares of coal companies Shenhua, Yanzhou Coal Mining Co., and China Coal Energy Co.
Chinese coal companies have been rebounding from their cheapest levels on record, Bloomberg reports, and Mobius thinks some may be ready to expand. “The slowdown that we’ve seen in global markets means there’s an opportunity for these companies to buy mines at low cost,” Mobius said.
Vanguard founder Jack Bogle says the U.S. is faring better than the rest of the world, and that China’s economy is “sinking quite a bit” right now. “The fact of the matter is our economy, U.S. GDP, is the best performer in the developed world by a good margin and the rest of the world has not made this kind of recovery,” Bogle tells Fox Business Network. “China is of course much more rapidly growing, but seems to be sinking quite a bit.” Bogle also talks about the need for regulatory clarity. ”We have to get some clarity as to what the future holds in terms of the government’s role, taxes, capital gains, dividends,” he says. “I think it’s less that we get the right rules than that we get some rules.”
While Chinese stocks have fallen in recent months, top value investor Whitney Tilson isn’t seeing value in the Asian giant. In fact, he says China is “uninvestable”.
In an email to ValueWalk.com, Tilson explains how his father appears to have been scammed after recently buying a product from a Chinese website, “yet another case study that reinforces my belief that if you do business or invest in China or with Chinese companies, there’s an alarmingly high likelihood that you will get scammed”. Tilson says that rather than trying to address fraud, the Chinese government “instead … attacks those who seek to uncover it — no doubt largely because princelings (children of powerful senior leaders) are directly complicit in (and profiting enormously from) the fraud.”
Tilson adds that there are many legitimate, honest people and businesses in China. “But,” he says, “I’m convinced that the fraud is so pervasive that, as an outsider who can’t tell who/what is legit, you’re likely to get scammed.” And, for investors, here’s the kicker: “In my view,” Tilson says, “China falls into the same risk category as Russia and Zimbabwe — completely uninvestable.”
While many investors are fleeing Chinese equities, Fidelity’s Anthony Bolton remains bullish.
“People are generally cautious and are taking money out of China which, as a contrarian, I see as positive,” Bolton says, according to Investment Week. Bolton, who compiled an exceptional fund management track record in the U.K. before moving on to a China fund a couple years back, says that local, private Asian investors generally have most of their money in cash on deposit, and little in bonds and equities. “It is this money that will drive the market when the market turns,” he said. “People are not positioned for markets to go up, which is usually when they do go up.”
Bolton says the valuation picture is very good in China. “Valuations are really supportive at the moment — the valuation case for China is as good as I have seen it,” he said, adding that in terms of forward earnings, China is “off the scale,” Investment Week reported. He also thinks inflation will fall below 2% in China this year, meaning that policymakers may well act in ways that bolster equity prices.
Charles Schwab Chief Investment Strategist Liz Ann Sonders says she expects stocks of U.S. companies that do more of their business domestically rather than overseas should continue to outperform in the short term amid concerns about growth in places like China. But she also tells Bloomberg that she wouldn’t get too defensive, because countries like China have and are willing to use a lot of firepower to spark their economies. Sonders also talks about the Federal Reserve, and whether more easing on its part will lead to improvements in the economy and stock market.
With China announcing its first interest rate cut in about four years, Kenneth Fisher says he expects good things from Chinese equities.
“We’re overweight China and optimistic on China relative to both emerging markets and the world as a whole,” Fisher told Bloomberg. “We see this as part of a broader Chinese effort to stimulate, loosen and deregulate.”
China represents about 6% of Fisher Investments’ portfolio, according to Bloomberg. The firm had begun upping its China stake in last year’s fourth quarter, and at the end of last quarter was the largest holder in the iShares FTSE China 25 Index Fund, which is the biggest U.S.-listed China exchange-traded fund, Bloomberg reports.
Forbes’ Kenneth Fisher says he’s found a good timing mechanism for investing in Chinese stocks, and says it is showing that the “stars are in alignment” for Chinese equities in 2012.
The timing approach is based on the idea that politics drives the economy and market in China, Fisher says. “China’s powerful Communist Party leadership has a cultural history of trying to depress the economy (and hence stocks) in varying ways two years before elections, which occur every five years,” he writes in his latest column. “Then they gun it as the election approaches.”
Fisher says that’s playing out again this election cycle. Monetary growth and fiscal stimulus tumbled and taxes were high in 2010 and 2011, but the government has made several moves — including a major income tax cut and a cut in the energy production tax — in the past few months to promote growth this year (which is an election year). “So,” Fisher says, “China is priming the pumps of its economy, and the ripple effect will be felt by stocks.” He offers seven Chinese stock picks, including China Telecom.
Jeremy Grantham’s firm is taking a very bearish stance on China, believing the country is in a huge infrastructure and real estate bubble.
“China is experiencing the mother of all bubbles,” Peter Chiappinelli, portfolio strategist at Grantham’s GMO, says, according to InvestmentNews.com. “We don’t know when it’s going to pop or what’s going to cause it to pop, but there’s very little track record of countries successfully navigating a soft landing out of a bubble.”
GMO is hedging its China exposure to near zero in the emerging-markets portions of its mutual funds, Chiappinelli said, and it is net short on the country in its hedge fund.