HONG KONG (Reuters) - China’s growth will be driven by education, autos, healthcare and e-commerce over the next two years, as Beijing’s push to transform its economy into a consumption-driven one pays off, a fund manager said, adding equities were a top pick for 2018.
Global stock markets have soared to new heights this year, as the world economy gathered speed even as inflation remained stubbornly weak, giving central banks room to roll back some of the stimulus deployed in the aftermath of the 2008-09 financial crisis while keeping interest rates relatively low.
The strength in equities is set to continue, Thomas Kwan, chief investment officer (CIO) of Harvest Global Investments, said at the Reuters Global Investment 2018 Outlook Summit.
Chinese equities remain the top pick for next year and it is also time for global investors to buy Chinese bonds, although the country’s high debt levels are a concern, Kwan added.
Kwan said he had allocated the maximum amount of funds into equities as allowed by the preset limits of various investment products at Harvest.
Kwan’s Hong Kong-based firm operates as the global arm of one of China’s largest asset managers - Harvest Fund Management. The parent has about $130 billion worth of assets under management, mostly in mainland China.
Healthy U.S. and European growth will help Chinese exports, while China’s transition to a more consumption-driven model offers opportunities in “new economy” companies, Kwan said.
“What is driving growth is consumption-related industries, services,” he said on Monday. “Autos, education, healthcare, internet commerce - those will remain the driver of growth for China in the next two years.”
China’s growth should help Asia outperform other emerging markets, while declining risks of a euro zone break-up and strong growth should help European equities beat their developed market peers, Kwan said.
China’s economy looks set to clock its first acceleration since 2010. Indicating strong consumption, e-commerce giant Alibaba’s (BABA.N) sales on Single’s Day - an annual Black Friday-like shopping frenzy that takes place in China on Nov. 11 - smashed its own record with a $25.4 billion haul. [nL3N1NG4YJ]
However, high corporate debt remains a concern.
Rating agencies estimate China’s overall debt burden at almost three times annual economic output. In September, S&P Global Ratings said the country’s debt growth would slow over the next five years, but would remain at levels that could cause financial stress. [nL4N1NA03W][nL4N1MA2X6]
“Leverage is definitely higher than it should be,” Kwan said. “That’s actually the area that can derail the stable macro environment.” But the economy’s rebalancing towards domestic demand should help counterbalance the debt risks, he added.
“Things are much more stable now ... actually much less (worrying) than two to three years ago.”
In fixed income, Chinese bonds offer a higher yield alternative to G3 debt for investors looking for exposure to large markets, especially those based in Europe, where interest rates are near zero, Kwan said.
“It is time for global investors to look at the China bond market,” Kwan said.
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Reporting by Julie Zhu, Marius Zaharia and Jennifer Hughes; Editing by Himani Sarkar