Speculation that growth in China is unsustainable, creating a ‘bubble’, is unfounded, a fund manager has said.
Co-manager of the Allianz RCM BRIC Equity Fund, Guido Stiel, said property prices and the relative lack of debt in emerging markets meant a collapse in investment values was unlikely.
Stiel said property prices in major Chinese cities were no higher than those in New York or London, while there is high potential for growth in smaller cities.
“The tightening measures that we saw from the Chinese government, and which have concerned investors this year, were targeting property speculators rather than first time buyers or those looking to upgrade their property,” Stiel said.
There is far less property-related debt in China, Stiel added. “When people talk of a bubble, they associate it with debt, and we are not seeing a debt bubble here in China.”
The domestic market in China continues to grow, Stiel said, with a growing middle class. He believes the economic development pattern in China is similar to Brazil. New opportunities in India are arising from steadily expanding consumer demand, as well as the drive to develop infrastructure and the increasing importance of outsourcing to cut costs in developed markets, Stiel said.
“Investors are cautiously positive about the emerging markets at the moment and we believe that optimism will pick up further as the fear of a double dip in the West gradually diminishes which we expect towards the end of the year,” he added.
Emerging markets macro strategist at JP Morgan, George Iwanicki, recently said emerging market assets could present an attractive rate of return, a result of ‘dividend yield, foreign exchange movement, earnings growth and valuation’.
Iwanicki said if double-dip recession fears did materialise in the developed world, emerging market governments had ‘more firepower, not only fiscal but also monetary, should it be needed’.
He did caution that further investigation into sectors, like materials or telecommunications, could raise caution flags, around issues such as slipping capital discipline or pressure on profit margins.
© Fair Investment Company Ltd