After successfully riding China’s epic stock rally in late September, Fidelity International’s George Efstathopoulos is boosting positions again on expectations that fiscal stimulus will prop up the economy.
The Singapore-based money manager, who oversees about US$3 billion ($4.02 billion) across assets, has rotated into mid-cap shares listed on the mainland last week after taking profit from his exposure via Hong Kong during the latest rebound.
His focus is on the CSI 500 Index, whose gains have trailed the blue-chip CSI 300 gauge’s performance this year.
Chinese authorities have “the ability and they’ll do what they need to do to make sure that domestic growth is decent”, Efstathopoulos said in an interview last week. Onshore shares are “more immune” to what happens with the geopolitics, and mid-caps should also benefit more from stimulus measures, he added.
Such optimism pits the Fidelity manager against some Wall Street strategists who have turned more cautious on Chinese stocks in the wake of Donald Trump’s election win and an underwhelming fiscal package.
Efstathopoulos, who has invested in Chinese bonds to equities through economic cycles, believes Beijing likely has enough policy firepower to deploy if and when tariffs threatened by the US president-elect materialise.
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China stocks have swung wildly this year, having plunged to a five-year low in February before a monetary stimulus blitz in late September catapulted the CSI 300 Index up 32% in just six trading sessions.
That volatility has proved a boon for the Fidelity manager, who also profited from his purchases during the January rout. He raised his China stock exposure to about 4% of his portfolio in the summer before slashing it to 1% as stocks skyrocketed in September.
With the recent addition of onshore, mid-cap shares, his holdings are now back “around the 3-3.5%” mark.
Efstathopoulos helps oversee Fidelity’s global multi asset growth and income fund that’s returned 9.5% in the past year. The strategy targets an annual 7% to 9% return over the cycle, the firm said.
He has been reloading his China wagers using derivatives known as contracts for difference, replacing his earlier positions on Hang Seng China Enterprises Index futures.
Less optimistic
His China bets might seem bold in a market that’s seeing bearish views creep back in. Stocks have lost momentum since an Oct 8 peak, as Beijing disappointed investors with its focus on fixing debt woes over stimulating consumption.
There’s plenty of reason for caution. The latest economic data have been a mixed bag — retail sales have improved but deflationary pressure has persisted. Sino-American tensions are set to ratchet up with Trump naming officials known as China hawks in key posts.
Yet for Efstathopoulos, it makes sense for Beijing to await more clarity on tariffs before deploying “dry powder” to stimulate the economy. China has also well diversified its export channels compared with during Trump’s first presidency.
“You want to see what the potential damage might be to be able to bridge gaps,” he said. If domestic consumption comes through on fiscal stimulus, “CSI 500 is probably going to be the biggest winner”.
Chart: Bloomberg
