Fuji Credit Asset Management: Are Chinese Equities Headed Lower?

Jan 25, 2016, 05:28 ET from Fuji Credit Asset Management

OSAKA, Japan, January 25, 2016 /PRNewswire/ --

Fuji Credit Asset Management: With the Shanghai Composite down some 40% since the bubble burst in mid-June 2015, the time to buy could be now. 

Thus far, 2016 has been a turbulent affair for the global financial markets. The US benchmark stock indices are down more than 10% since the US Federal Reserve raised interest rates in December last year, Japan's Nikkei 225 has entered bear market territory and European markets haven't fared much better.

Surely, then, China's equity markets must be poised for a meaningful and sustainable reversal given that 2016 has brought with it the second major rout in the Shanghai and Shenzhen Composites in just 6 months?

"Potentially," says Tony Williams, who as Head of Corporate Trading at Fuji Credit Asset Management, oversees the deployment of over $1.5bn in client capital. "The volatility we've seen in China's equity markets isn't rooted in the outlook - bearish or bullish - for the country's economy because although it's not growing at double digit rates any longer, it's still outpacing the US, Europe and Japan combined in terms of GDP growth. The reason that Chinese stocks are more volatile than Western markets is because Chinese stock markets are dominated by inexperienced retail investors who don't have the discipline and experience that acts as a natural check on volatility in advanced bourses."

"During the worst of the selling last summer, "Mom & Pop" investors were more likely to panic sell as they saw the value of their nest eggs plunge in the midst of wild swings of anything from 5% to 8% in a single trading session."

Williams believes, however, that despite the 40% decline in the Shanghai Composite since mid-June last year, Chinese equities look like compelling value for money. Deep discounts in the likes of Alibaba Holdings and Tencent look very attractive for investors looking to avail themselves of the potential for a rebound in two of the highest quality blue chips.

"An increasing number of investors are bearish right now because they see negative headlines in the mainstream media forecasting a slowdown and possible recession in the US, the prospect of a so-called "hard landing" for China and sub-$30-a-barrel oil but it's worth remembering that stocks are forward looking and, looking forward, it's not the global slowdown that should be driving investment decisions; it's what the world's central banks will do in response to the slowdown that should be at the forefront of our minds when considering where to put money to work," said Williams.

Fuji Credit Asset Management says investors should be averaging into stocks (where stocks are purchased at regular intervals at varying prices to make their acquisition less expensive). The Osaka, Japan-headquartered investment house counts Chinese equities on overseas exchanges like the U.S and Hong Kong to represent some of the best value assets.

"There are some positive signs that the pace of China's economic slowdown is moderating and we're cautiously optimistic that the various measures the People's Bank of China has introduced like interest rate cuts and reductions to banks' reserve requirement ratios will see the economy producing some positive numbers by the third quarter of 2016," said Williams.

Williams accepts that stocks could trend lower in the short term but long-term investors who follow the firm's advice to cost-average their acquisitions will be well-served by the long-term bullish outlook for Chinese shares.

About Fuji Credit Asset Management:

Fuji Credit Asset Management is a fully independent, investment management practice that provides prudent, well-researched guidance and counsel to individuals, families and institutions with a need to accumulate and preserve wealth.

Fuji Credit Asset Management is a fee-only practice. This means that they are compensated solely by our clients and they neither accept nor solicit inducements or remuneration from product providers or financial institutions in return for endorsing or recommending particular investments or financial products.


SOURCE Fuji Credit Asset Management