While some fund houses choose to be cautious on China due to what they consider to be stretched valuations in that market, Mirae Asset Global Investments believes that now is the time to invest in the mainland. Mirae's strongest argument for its bullishness is the expectation that China's economy is set to recover and achieve above 8% gross domestic product (GDP) growth in the second half of 2009.
Byung Ha Kim, associate director at Mirae Asset and lead portfolio manager for the $182 million Mirae Asset China Sector Leader Equity Fund believes the investment opportunities in China are attractive in the short and long term.
In the short term, China has one of the world's strongest balance sheets and its Rmb4 trillion ($586 billion) stimulus package and loosening monetary policy is already having a positive impact on domestic consumption and investment demand, Kim says.
From a longer term perspective, Mirae Asset expects China to effectively transform its export driven economic growth into higher domestic consumption.
"We believe this will result in stellar economic growth for another decade driven by new growth engines, like urbanisation, financial services, and the growth of high value-added industries," Kim says.
Merger and acquisition activity in China is a theme that Mirae Asset believes offers many opportunities for investors. While global M&A activity has fallen since the credit crunch, the fund house believes prospects for Chinese cross-border M&A activity are looking extremely positive.
"Riding on the weakening of foreign currencies relative to the renminbi and falling commodity prices, Chinese commodity firms in particular are aggressively seeking acquisition targets in the resources sector to secure commodity supply," Kim says. "In the next couple of years we may see other sectors doing the same thing, seeking acquisition targets and good strategic alliances globally. Similar to Japan in the 80s and the US in the 90s, the Chinese-centric outbound investment theme will flourish."
Mirae Asset also believes that current valuations are attractive because corporate earnings for certain sectors, such as insurance, oil refineries and some industrial companies, have bottomed out.
Mirae Asset does warn, however, that there may be some short-term volatility with the recent A-share market rally.
"As banks tighten lending standards on discounted bills, and as short-term loans are transferred into longer-term loans, liquidity of the A-share market is likely to constrict which will cause some volatility," Kim says. "However, with improving economic and corporate fundamentals, it will continue to trade to the upside."