Ashburton’s Simon Finch comments on new Chinese leadership

Simon Finch, Asian equity specialist at Ashburton, has commented on China’s new leaders and the outlook for the country’s economy in 2013.

New leaders, same old challenges. Whilst China remains an enigma for many, and the process behind the leadership transition is also a mystery, we are optimistic that the policymakers taking over in 2013 understand the requirements to stabilise the Party as well as the domestic economy. China will still overtake the US economy in terms of size in the coming years, however, we believe that the leadership is realising that it does not have to happen right now, and that short-term growth can be tempered in order to balance the medium to long term sustainability of the country.

2012 has been a turbulent year for politicians within China, as one would expect in a transition period, however that uncertainty has now been removed which should give stability and confidence to the Chinese equity market. Past errors, such as the huge stimulus package of 2008, are being understood and considered in terms of future decisions. The 12th five year plan sets out definitive goals in infrastructure, healthcare, social and welfare reform amongst environmental goals and energy targets. With a clear road map and milestones to be achieved, with a new unencumbered leadership at the helm, the Chinese equity market should be of particular interest from this juncture.

The economy has been basing out, and although growth expectations have been dampened in recent years, it should be remembered that a 7% growth rate is something most other countries on the planet would die for. Further encouraging signs have been the pickup in reforms such as capital account opening and liberalisation of interest rates and taxes, indicating that the hierarchy are increasingly aware of the trade-off between short-term growth and mid-term stability. So new leaders, new year, and new goals for 2013, all point to an exciting and genuine investment opportunity.

 

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