The third plenum, a meeting of the Central Committee of the CPC, is when new reforms are set out, dictating plans for China’s development. No wonder then managers are carefully dissecting the long-awaited document seeking opportunities for alpha.
We pulled opinions from managers across Asia for how they are positioning their portfolios for the plenary reforms.
Andrew Swan, head of Asian equities, BlackRock
‘Counterintuitively, the reform announcements might lead to a further deceleration in trend growth within the economy with emphasis on the quality, rather than the quantity, of growth going forwards,’ said Andrew Swan, head of Asian equities, BlackRock.
According to Swan, stock selection will be even more crucial as the winners and losers of a reforming China have yet to emerge, and even state-owned behemoths may offer opportunities.
‘We have potentially yet to see some of the new companies which will be the future leaders in a more market orientated economy. Whilst the outlook for the larger State Owned Enterprises (SOE’s) is certainly bleaker as their role within the economy is diminished over time, it is by no means dim. Given attractive valuations, these stocks could offer investors favourable returns in the near term.’
Anthony Wong, portfolio manager, Allianz Global Investors
‘In my opinion, the announced reform plan is a slight disappointment to the market. With the exception of an emphasis on the importance of market economy, which is stronger than many have expected, there is neither pleasant surprise nor details on the reform plan itself,’ said Anthony Wong, portfolio manager, Allianz Global Investors.
While noting the emphasis on market-oriented reforms, Wong notes sectors that could potentially benefit include education and medical services, media, new energy and defence sectors.
Mansfield Mok, senior portfolio manager, EFG Asset Management
‘As expected of high-level discussions, the Third Plenum did not in and of itself offer much in terms of concrete plans for reform. They did, however, offer two major indicators as to the shift in political trends going forward, both of which reflect the more centralised approach President Xi Jinping has to power. Short-term investors expecting immediate, comprehensive reform, however, will most likely be disappointed,’ said Mansfield Mok, senior portfolio manager, EFG Asset Management.
Since August 2012, Mok has managed New Capital China Equity USD Ord Acc.
He favours financials, noting, ‘we like insurance companies, as their valuations have not factored in any major growth potential. We also have exposure to a stock broker and an asset manager, as they are both major beneficiaries of financial reform.’