Investment trust insider on China’s stimulus – James Carthew: A China recovery could have a big impact on the world
It’s not just China investment trusts that are feeling the benefit of Beijing’s efforts to stimulate the country’s stalling economy and depressed stock market.
The latest rounds of stimulus being injected into the Chinese economy has triggered a sharp recovery in the assets and share prices of the three remaining investment trusts dedicated to that market.
The first part of the rebound by Baillie Gifford China Growth (BGCG), Fidelity China Special Situations and JPMorgan China Growth & Income (JGCI) put them among the best-performing trusts in September, although the gains just take us back to where we were about a year ago, and there seems to be considerable scepticism about whether the stimulus will have a lasting effect.
The measures are focused on making it easier and cheaper to borrow (by boosting banks’ ability to lend, and cutting the central bank’s policy interest rate and mortgage rates), stimulating the housing market (by reducing deposit requirements and encouraging local authorities to convert excess housing stock to affordable housing), and inflating equity prices (by making it easier for institutional investors to gear up their portfolios, and providing finance to companies wanting to buy back stock).
Speaking before this intervention, Dale Nicholls, fund manager of Fidelity China Special Situations (FCSS), which I hold, noted an increasing focus on dividends and share buybacks, even from the likes of Alibaba and Tencent. He said that weak consumer sentiment had been a major contributor to the economic slowdown but stressed that household finances were in good shape. He pointed to falling interest rates and incentives to upgrade appliances as reasons why consumer demand might pick up.
A resurgent Chinese economy would… read more here