Should we be worried about China?

Iona Bain

The Chinese New Year is upon us, and perhaps its animal for 2017 is timely in our current political climate. According to astrologers, the Rooster is cocky, opinionated and attention seeking – sound familiar?

China, one of the powerhouse economies of the world, is entering an uncertain New Year now that Donald Trump rules the roost in Washington. For years it has been tipped to take over America as the biggest global economy. But now its fortunes (and indeed ours) hinge on whether President Trump’s hard-line protectionist agenda will ruffle feathers and ultimately lead to a trade war.

The omens might not look terrific (to use one of the Donald’s favourite words). He has accused China of currency manipulation, threatened steep import tariffs on Chinese goods and even indicated that the US will recommence official relations with Taiwan, despite objections from China.

Jason Hollands from investment firm Tilney Bestinvest says a Sino-American trade war would be ‘highly damaging’ for the entire global economy, but with China really losing out given its trade surplus. ‘While the era of Trump could lead to a wide range of potential outcomes for the US, from supercharged growth to spiralling inflation and indebtedness, it is particularly difficult to see it as bullish for China.’ This could be why Asian funds saw outflows of £147 million in November, according to the latest stats from the Investment Association.

So why do so many fund managers remain (surprisingly) upbeat about China? Take Dale Nicholls, portfolio manager of the Fidelity China Special Situations investment trust, who says: ‘When I speak to companies in China, Trump is not a major talking point, partly due to the lack of real clarity around policy but also because the companies continue to focus on the significant domestic market opportunities ahead of them.’

Then there’s Will Hobbs and Chris Stevenson of Barclays Investment, who say China still ticks all the boxes when it comes to emerging markets with credible macroeconomic policies, structural growth, decent governance and liquid, diversified markets.

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