Fundies pragmatic on China and Russia/Ukraine despite headlines

Mike Taylor

Managing Editor/Publisher, Financial Newswire

10 November 2022

The headlines may suggest otherwise, but fund managers are far less spooked by the Russia/Ukraine war and events in China, according to new analysis undertaken by research and ratings house, Zenith.

The analysis, published this week, reveals that fund managers are pragmatic with half expecting the impact of the Russia/Ukraine geopolitical situation to decrease over the next year while, with respect to China, views are also split.

It said most managers believed the market impact of the China-US geopolitical situation would remain unchanged and that of the managers that believe the market impact will change, the majority believed it will increase.

“The number of managers that believe the market impact of the China-Taiwan geopolitical situation will remain unchanged or decrease was split, while a small minority of managers believe it will increase over the next 12 months,” the Zenith analysis said.

“Importantly, for both Chinese-related surveys, most managers believe that the market impact of each of the geopolitical situations will either remain unchanged or decrease, which is contrary to the headline grabbing rhetoric that China is uninvestible”.

What is more the Zenith analysis pointed out that China was no stranger to equity market volatility with a major draw-down typically occurring every few years.

“Although Chinese equities (as measured by the MSCI China Index $A) have experienced material drawdowns, they have historically recovered. Furthermore, when compared against developed market equities (as measured by the MSCI World Index $A), Chinese equities have materially outperformed over the long term,” the analysis said.

“Prior to the most recent drawdown, which has been severe, Chinese equities had appreciated 509% since the inception of the MSCI China Index $A in January 2001. From inception to 30 June 2022, which includes the most recent drawdown, Chinese equities have still appreciated 339% and materially outperformed developed market equities, which appreciated 152% over the same timeframe.”

On the question of whether China is uninvestible, the Zenith analysis pointed out that actions speak louder than words, and that while managers had been underweight to China, they had remained alive to investment opportunities.