A veteran Asia equity fund manager who has outperformed peers by avoiding China expects the region’s largest market to remain weak for the next several years, even as some global banks are seeing signs of an economic bottom.
(Bloomberg) — A veteran Asia equity fund manager who has outperformed peers by avoiding China expects the region’s largest market to remain weak for the next several years, even as some global banks are seeing signs of an economic bottom.
Jason Pidcock of Jupiter Asset Management Ltd. said he fully divested from onshore Chinese stocks in July 2022 and didn’t buy back into its reopening rally, which has largely faded in recent months. He cited the nation’s property sector crisis — which has weighed heavily on the economy — and authorities’ lack of prioritization of equity investors, among reasons for his bearish view.
“We’re not doing it to capture a short-term fad,” Pidcock said in an interview. “In the next four years, it’s going to be difficult to see much of an improvement” in China’s economy, said the London-based money manager who has been investing in Asia Pacific equities since the 1990s.
Pidcock’s $1.5 billion Jupiter Asian Income strategy has beaten 97% of peers over the past three years, with an 8.9% return. That outperformance is partly due to staying away from China, which has seen a steeper selloff since January than the broader Asian market.
China’s economy has shown some signs of revival, with recent incremental improvement in industrial profits, tourism revenue and manufacturing activity. Still, the extreme pessimism among foreign investors may take a while to unwind, with new emerging-market mandates that exclude China stocks reaching a record this year and global funds slashing China holdings to the lowest since 2020.
Trepidation also remains about unexpected crackdowns as Beijing rolls out its “common prosperity” and anti-corruption campaigns, with the healthcare sector the latest target. Worries about earnings are rife after disruptions from probes into the tech and education industries, and given a demand slump in the heavyweight property sector that is showing no signs of letting up.
“I don’t think the Chinese government’s priority is setting conditions for investors to make money from the stock market,” Pidcock said. “They do care about the economy and employment, but it’s clearly a very different political system.”
Even in better times, China has always struggled to translate its economic boom into stock market returns, the money manager said. The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong has returned about 4% since its launch in August 1994, the smallest gain among major global equity indexes tracked by Bloomberg. India’s benchmark S&P BSE Sensex has soared more than 1,400% over the same period.
India is “the most exciting developing market” in Asia, said Pidcock, adding that large-cap valuations aren’t “too high” relative to earnings growth prospects.
In particular, Pidcock prefers Indian technology service providers, consumer staples firms and financials. The country is among the largest weightings in his product alongside Australia. Pidcock prefers consumption and infrastructure names in Australia as immigration boosts its population, he said.
India’s ITC Ltd., Taiwan’s Hon Hai Precision Industry Co. and Australia’s BHP Group Ltd. are among Jupiter Asian Income strategy’s largest holdings.
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