As China's Rmb4 trillion stimulus package finds it was into the Chinese economy, MFC Global Investment Management's Greater China equity managers are selectively increasing their exposure in that market.
Matthew Lee, head of Greater China equities at MFC Global, which is the asset management arm of Manulife Financial, says the fund house favours industries and companies that are likely to benefit from the government stimulus policies, companies that are likely to see stronger earnings recovery and companies that have higher transparency and consistency in earnings growth. Lee manages the Manulife Greater China Opportunities Fund.
Among the sectors grabbing the team's attention are: banks, due to strong lending growth; infrastructure-related companies such as rail construction, cement and steel; and companies demonstrating earnings turnaround as a result of more favourable regulations or market dynamics. Some of these could include oil refining companies, automakers and defensive growth industries such as internet-related companies that are less dependent on economic cycles.
"We are not particularly focused on the materials sector at this stage, despite a better growth outlook for China," adds Terrace Chum, senior portfolio manager at MFC Global's Greater China equities team. "The major materials companies are still reporting losses and the first half of 2009 is highly likely to be a loss period for them."
Judging by recently released data, the team says it expects that the Chinese economy should have bottomed in the first quarter this year, at 6.1% GDP growth. Bank lending in the same period, in response to the stimulus package, was a record Rmb4.7 trillion, which the team says should have a strong impact on fixed asset investments in the coming months.
The purchasing managers' index, which measures the economic state of the manufacturing sector, has grown for the past five months and there is abundant liquidity in the Hong Kong and Chinese economies. Although exports are still dropping at an alarming level, the rate of decline is showing some moderation.
While the portfolio managers expect unemployment to remain high for the next few quarters, their outlook overall is that the Chinese economy is on a recovery path, which is welcome news for funds such as their China Opportunities Fund.
The fund, which according to MorningStar has around $62 million in assets under management, invests at least 80% of its assets in equity securities of companies in China, Hong Kong, or Taiwan.