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China set for new stimulus surge, say two top managers

China set for new stimulus surge, say two top managers

Chinese Premier Li Keqiang delivered the Government Work Report in the fourth session of the 12th National People’s Congress on March 5, outlining China’s macroeconomic and policy targets as well as its reform agenda for 2015.

The NPC lasted for 10 days and marked its closing on March 15. During the congress, the Chinese government set a growth target of 6.5% to 7% over the next five years, lower than “about 7%” for 2015, reflecting the authorities’ balancing act between structural reform and growth stability.

Premier Li Keqiang also took a more accommodative stance, cutting China's fiscal deficit-GDP ratio to 3% from 2.3% and setting a 13% growth target for broad money supply.

Against this backdrop, Citywire Selector's sister site Citywire Asia canvassed portfolio managers’ views on which sectors they are backing and what the behind-the-scenes reasons are.

Jian Shi Cortesi, A-rated Chinese equities manager, GAM

So far this year, the materials and energy sectors have been the top performers in the Hong Kong-listed Chinese stock universe. This was partly due to the recovery of commodity prices and partly based on the hope of significant capacity reduction in the material sectors.

While the NPC communication confirmed the plan to invest in transportation infrastructure with a focus on central and Western China, we believe this will pale in comparison to the scale of the infrastructure build-out that had followed the 2008 financial crisis.

As a result, Chinese commodity demand growth will remain in a downward trend over the longer term. Capacity reduction will likely happen at a very gradual pace in order to avoid an unemployment shock, particularly in the material-producing regions. We continue to believe that the best places to invest in China with a long-term view are companies related to the themes of consumption, technology and healthcare.

Mandy Chan, head of China and Hong Kong equities, HSBC GAM

The monetary/credit and fiscal deficit targets suggest monetary stance will remain accommodative and fiscal policy will be more proactive and expansionary.

I am positive on selective property developers with significant exposure to tier-1 and -2 cities given that strong demand, potential undersupply, further monetary easing, the lowering of the down payment ratio for first time home buyers and tax cuts have bolstered sentiment around the Chinese property sector.

We continue to increase our weighting in IT given its attractive prospects for earnings growth relative to other sectors. We are overweight the sector ahead of the index rebalancing in May, where IT will see its weighting further rise on the back of full ADR inclusion.

We like companies that have a sound business strategy that will potentially generate sustainable profitability and earnings growth. IT has been a strong contributor to our portfolio’s performance over the last six months.

We are finding opportunities within the commodity sector, as the outlook is improving from supply-side reform and the pick-up in construction activity we have seen going on in the new year. We look to invest in names that are trading at attractive valuation levels and that are positioned to benefit from this recovery trend - particularly those sectors related to property.

We are also overweight in the auto sector, focusing on companies with a strong product pipeline that will likely benefit from the strong sales momentum and domestic demand growth of sport utility vehicles. We are also constructive on names that can execute strong cost-saving strategy and are exposed to the ‘electric vehicles’ theme due to the strong EV demand going forward.

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