China, reforms that help the market

9 July 2014

Upon his return from a trip to Asia where he met with several local operators, Michele Gesualdi, manager of the Kairos multi-manager team, puts the situation on the continent’s two main economies into focus. He reports, “First, when we talk about China, we must say that there is a need to let go of a dogmatic approach and market indices. Local managers continue to be very pragmatic and are concentrating on the growth areas connected to the new economy. These are themes that have undergone a sharp correction in recent months, but for many, the drop can be considered a correction within a bull market that remains steady and long-lasting”. No doubts were raised about the positive direction of this trend, whereas with respect to the old economy (banking, insurance, commodities and the real estate market), the reforms introduced by the Chinese government are headed in the right direction, even if it is not yet clear if these companies’ earnings are improving.

In terms of themes, the most interesting developments seem to be in the securities traded on China’s domestic indices. Reforms enabling greater investment inflows to the country are making the market more liquid and, accordingly, more investible.

According to Gesualdi, “consider that the local Chinese market trades at valuations below those at the end of 2008 and it is clear that even a minimal re-rating of this market could offer decent medium-term investment opportunities. The improvement seen in both exports and the overall economy in recent months, a weaker currency and rising flows are all factors pushing this market in the right direction”. As for the management strategies of Kairos funds of funds, Michele Gesualdi notes, “Given the scenario and in keeping with the various management mandates, we are considering an increase in portfolios in this theme”.