China's countdown to congress

Josh Crabb, head of Asian equities, Old Mutual Global Investors

“The countdown to the 19th national congress of the Communist Party of China, scheduled for 18 October, is on. While at this stage we can only speculate as to what will top the party agenda, it is highly likely that the Chinese government will confirm its unwavering commitment to three key areas – tackling its vast pollution problem, committing further resource to its extensive infrastructure plans, through the building out of its One Road, One Belt project, and developing further its technological capabilities. We are well exposed to all three themes across our strategies. In terms of environmental plays, we like China Suntien Green Energy Corp and Maanshan Iron & Steel. Amongst infrastructure plays, we favour China Resources Cement Holdings, and West China Cement and, in the area of technology, Hua Hong Semiconductor as a means of profiting from the growth afforded by artificial intelligence.

“Chinese equities have been one of the strongest Asian performers this year – up 50% - year-to-date* in US dollar, total return terms, powered by strong earnings growth. In terms of the economic cycle, while the US economy is more developed and tends to be late in the business cycle, China is typically early to mid-stage. As an economy’s position in the business cycle is a crucial determinant of equity market returns, we believe strong earnings momentum in Asia can continue for some time to come.”

*Source: Bloomberg.