Will China remain the showstopper for alternative managers?

China is still a lightning conductor for investors taking the pundit’s seat, and yet the chances are its markets will stay stuck in the doldrums.
Will China remain the showstopper for alternative managers?

The theme of a panel at AsianInvestor's recent investment summit in Hong Kong was ‘current opportunities for alternative investments in the region', moderated by Christophe Lee, chairman of the Alternative Investment Management Association in Hong Kong.

He charged the panellists with telling the audience about new opportunities as perceived through the end of an alternatives telescope.

“If we see a moderation in the tightening process [by Asian central banks], money may flow back into China and the long/short managers should benefit as a result,” said Andrew Wong, partner and portfolio manager at Penjing Asset Management. “I like Asian macro where a manager can capitalise on an appreciating currency. I also like volatility strategies where large deviation events and 100-year occurrences can’t be disregarded.”

But China is still the hottest ticket, the showstopper. According to Brooke Zhou, executive director of Asia-Pacific private equity for LGT Capital Partners, in 2006 Australia and New Zealand had the highest price-earnings ratios in the market, a title she believes is now held by China.

“We’re seeking to capture the urbanisation trend and find future sector leaders in areas like Chinese healthcare and technology,” she added. "Pre-IPO flips are over and general partners need to focus on providing value. There’s lots of low-hanging fruit.”

With domestic RMB funds and international private equity crowding out the house, though, that risks spoiling the party in China.

“I like Chinese consumer plays but I’m concerned about capital inflows chasing fewer opportunities and driving prices up," said Alexander Blank, vice-president and head of the Hong Kong office of SCM Strategic Capital Management Asia. “However, I don’t think there will be a hard landing in China.”

Outside of China he also likes property development in India and Southeast Asian resources, infrastructure and consumer plays.

And yet China’s markets just drift along, and mostly downwards. So is the relentless trumpeting and intoxicating optimism merited?

Lee made the point that the most unlikely event in the next 12 months would be that nothing of significance happens. But, what if nothing does happen – given that nothing usually does?

It may not make for a sensational prediction, but we’d like to hear from you if you have given up calling direction and think Chinese markets are just going to remain stuck in their present doldrums.

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