China’s property turmoil, increasing intervention in markets, and lackluster economic growth are combining to cloud the outlook for some of Australia’s largest investors that have been cutting allocations to Chinese assets.
(Bloomberg) — China’s property turmoil, increasing intervention in markets, and lackluster economic growth are combining to cloud the outlook for some of Australia’s largest investors that have been cutting allocations to Chinese assets.
Australia’s sovereign wealth fund says the return potential in China isn’t attractive, in part due to authorities’ stepping in to curb incentives for private investors in certain parts of its economy, such as gaming and education. Pension fund Construction & Building Unions Superannuation Fund has trimmed its China exposure and its CEO says it’s too early to be buying.
Global investors are grappling with the implications of a slew of recent policy moves in Beijing aimed at spurring its economy and luring foreign investors back to its stock market. There’s been a notable absence from authorities of broader stimulus measures despite the deepening property crisis, with the government’s economic growth target of around 5% at risk.
“We’ve reduced our exposure to China quite a bit,” Raphael Arndt, Chief Executive Officer of Australia’s A$256 billion ($166 billion) Future Fund said Wednesday. “It just looks like there’s a lot of risk there and the returns don’t look all that attractive when you weigh it up.”
China’s $18 trillion economy is struggling across a range of sectors, a situation exacerbated by US efforts to cut the country off from supplies of advanced semiconductors and other technologies set to drive future economic growth. Meantime, its financial sector is showing rising defaults at shadow banks and raising concern of a spillover into the nation’s state-owned lenders.
“There’s some real economic risk there,” said Ian Patrick, Australian Retirement Trust’s chief investment officer, who helps oversee about A$260 billion. That means “the outlook for equities, even though they appear reasonably good — fairly priced for that economic risk today — there’s clearly risk to the downside,” he said on the sidelines of the Australian Institute of Superannuation Trustees conference in the Sunshine Coast on Tuesday.
Domestic press reports have called for patience in long-term efforts to revive Asia’s largest economy. Mega stimulus packages of the past are seen as less likely in the current turmoil as debt-laden local governments don’t have the fiscal space for a major spending boost.
“Too Early”
The MSCI China Index of equities is down about 7% this month and even Wall Street analysts that started the year with a positive outlook are lowering their targets on Chinese stocks.
“It’s too early to be looking at opportunities to be honest,” Kristian Fok, Chief Executive Officer at Cbus, which manages more than A$85 billion, said on the sidelines of the Sunshine Coast pensions conference. “It’s looking a lot more challenging this time around.”
Back at the sovereign wealth fund, CEO Arndt says its China allocation is around half of what it was a few years ago and is now in the “low single digits.”
Markets rallied earlier in the year “on expectations the economy would come roaring back to life,” he said. “And that just hasn’t happened.”
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