FRANKFURT Cheap stocks and robust consumption by its middle class are reason to buy into China now, even though markets have turned cautious on the world's No.3 economy, a fund manager at BlackRock told Reuters.
"The sentiment (regarding investing in China) is quite different from 6-8 months ago. And we are not immune to these concerns. There is risk, but we do think that it is a good opportunity to invest in the country, due to low valuations and strong consumption," Jing Ning, portfolio manager at BlackRock, said in an interview on Thursday.
Ning manages the Black Rock China Fund 035920161X.LU, with a size of about $350 million. Since the beginning of the year, the fund has dropped 7.3 percent, outperforming its benchmark, the MSCI China 10/40 .dMICN0000TNUS, which has fallen 12 percent.
Fears of overheating -- China's economy grew 11.9 percent year-on-year in the first quarter -- as well as asset bubbles have added to investor concerns about how sustainable growth in China is while regulators urge the country's banks to curb lending.
Chinese stock markets have been suffering heavily under the recent sell-off triggered by the government debt crisis in Greece, with the Shanghai Composite Index .SSEC down about 19 percent year-to-date, compared with a 4 percent drop in Europe's benchmark index .FTEU3 as investors shun high-risk emerging market stocks.
"There were definitely some signs of overheating in the first quarter of 2010," Ning said. "But government investment is slowing down, while consumption is still strong. Sentiment on China should therefore improve in the second half of the year."
Ning said her fund was overweight on Chinese financial stocks -- top holdings include China Construction Bank (601939.SS), Bank of China (601988.SS) and China Life Insurance (601628.SS) -- and underweight on stocks with a focus on exports.
"In the first half of 2009, we were underweight in financials. Now we are overweight and are very positive on the sector for the next three to six months," Ning said.
Ning said China's middle class, amounting to more than 300 million people, roughly equal to the entire population of the United States, would push the country to become less dependent on exports and more reliant on strong domestic demand.
"To accelerate this trend, I think that China should bring about a currency reform as soon as possible. An appreciation of the renminbi against the dollar is the only way for the country in the long-term."
China said earlier this week it would chart its own course on its policy of tethering the yuan currency to the dollar, an issue that has constantly strained bilateral relations.
(Reporting by Christoph Steitz, editing by Will Waterman)