Please see below yesterdays (13/05/2020) article from Charles Sunnucks the Emerging Markets Fund Manager for Jupiter Asset Management:
Will Trump weaponise Covid-19 in China trade dispute?
As China continues to emerge from the worst effects of Covid-19, there is plenty of anecdotal evidence that pent up demand has created a snap back in sales since the lockdown ended, said Charles Sunnucks, Fund Manager, Emerging Markets. This is encouraging, but beyond the sugar rush of spiking activity due to pent-up demand and domestic stimulus; there is no doubt an unease about whether this pace can be kept up if developed nations do not stage a recovery. Ultimately, Charles’s view is that the recovery may well look more of a ‘W’ shape than ‘V’, as the reality of a very weak global backdrop hits.
In addition, there are signs of backlashes against China across a number of countries – the first foothills of what could become mountains of analysis into all the ‘could-haves, would-haves, should-haves’ of Chinese actions. Charles’s view is that this will only become more acute with the US Presidential election fast arriving on the horizon. Already, China is projected to import only $60bn from the US in 2020, due to the Covid-19 economic slowdown, which is well short of the almost $190bn committed to in the ‘phase 1’ trade agreement with the US – and it would not be a surprise if this was exploited by the US to extract further concessions.
So, what does likely rising hostility towards China mean for Chinese corporates? In higher value-add industries, such as technology, added Charles, Chinese policymakers are actively pursuing initiatives to grow export markets. This is the area where damage may be lasting, however. For instance, it will bring even greater scrutiny to Huawei’s 5G services and Chinese video sharing app Tik Tok; plus Chinese M&A abroad will likely be met with far greater regulatory examination than might have been the case four months ago, in Charles’ view. Even now a number of large US-listed Chinese firms are seeking Hong Kong listing.
Equity markets are a highly complex picture in China. Charles said that the market is home to quite a number of the most excessively valued companies globally, largely names listed in Shanghai/Shenzhen; but at the same time, he can identify some remarkable bottom-up opportunities, especially a number of firms not represented in the main indices that are trading at unprecedented valuations.
We will continue to monitor global markets and selectively communicate professional input to our clients.
Please keep safe and healthy.
Carl Mitchell – Dip PFS
IFA and Paraplanner
14/05/2020