Don't miss market chance, says fund
State Street global strategist believes the laggard mainland exchange is poised for a rebound, aided by favourable official policies
The mainland stock market is likely to outperform other emerging markets this year and investors should pick up shares rather than quit this market now, says asset manager State Street Global Advisors.
China is likely to see a slew of "favourable policy surprises" that could make its market outshine others after being in the doghouse for three years, said George Hoguet, the managing director and global investment strategist at the fund company's Investment Solutions Group.
"It's time to consider the share market now as there is some prospect for favourable policy surprises," said Hoguet.
Some investors have retreated from the mainland market completely and shifted to the US and Japan this year largely because of fears over slowing growth.
"I think foreign investors should keep some portfolio in this market as upcoming policies will be favourable, not negative," Hoguet said.
Investors should build positions in health care, internet, property and brokerage stocks as the nation pursues structural reforms aimed at raising consumption and liberalising the financial markets to avoid the "middle income trap", he said.
The hukou, or household registration system, which restricts labour mobility and denies China's 150 million migrant workers in cities basic social services such as health care and pensions, could be reformed in the second half of this year, Hoguet said.
He also expects more policies towards the internationalisation of the yuan, which could benefit brokerages. The currency has risen more than 19 per cent in real terms since 2000, but Hoguet believes it will continue to gain.
As China's impact on emerging markets increases, investors should also consider emerging markets as a whole, he said. The local and overseas-listed shares of mainland companies should all be part of the portfolio.
According to Hoguet, mainland stocks could be a good hedge if the United States' quantitative easing is scaled down, which would trigger a sell-off in the US market. "A shares only have a 0.5 per cent correlation with the S&P 500. I won't call it a safe haven, but it would be less affected [by global market turbulence]," he said.
The mainland market has gained 2.4 per cent this year.