Careful investors need to differentiate ‘old’ and ‘new’’ Chinas: AB

SYDNEY - Investors seeking a balanced perspective on risk and opportunity in China should set aside outdated perceptions of the country as a manufacturing juggernaut and think of it instead as “two Chinas”, according to global asset manager AllianceBernstein (AB).

“While China continues to face risks in the short term, we think pessimism about the medium- and long-term prospects is overdone,” said Stuart Rae, AB’s Chief Investment Officer—Asia-Pacific ex Japan Value Equities.

“The reason for this is that the good news about the structural rebalancing of the economy that’s well under way has yet to filter out to Western investors to any meaningful extent.”

Rae noted that the Chinese Government is making steady progress on its major policy goal of rebalancing the economy away from dependence on heavy industry.

“The contribution from investment, which has traditionally been China’s main growth driver, has declined as a share of GDP, while consumption and services have powered ahead. They now account for more than half of GDP and considerably more than half of the growth,” he said.

“This is an important development in line with the Government’s aim of preventing the country from falling into the middle-income trap—the point at which an export-oriented economy can no longer grow its income beyond a certain level.

“By diversifying its economy in this way, China is laying the ground for lower but more sustainable growth in future and less market volatility.

“Investors in China in our view now need to think in terms of two Chinas—the old and the new—and balance a sense of caution about the old economy with a willingness to look for selective and well-researched opportunities in the newer sectors of consumption and services." www.abglobal.com  (ATI).