Our Views on China

Comments from Chris Leyland
Deputy Chief Investment Officer
True Potential Investments

Markets have fallen heavily over the last few days with continual evidence that China’s economy is slowing and weaker manufacturing data in the US fuelling fears of a global growth slowdown.

This may be very concerning for investors who will be trying to digest the newsflow coming from markets and decide what to do with their investments. At True Potential Investments, we believe that the recent falls have opened up entry points for long term investors to invest in the stock market at very favourable prices.

By utilising modern technology, such as impulseSave®, investors can take advantage of these falls in the markets, thus maximising their returns quickly and easily.

China’s decision to devalue its Yuan currency earlier this month was the catalyst for this sell-off with investors believing that China’s economy is in an even worse place than they originally thought. Growth rate expectations are falling for China and this, coupled with difficulty on finding true Chinese economic data, low commodity prices and a strong US Dollar is putting a lot of pressure on markets. Deflation can bring both positive and negative effects for Western economies. It is positive as it acts almost as a reduction on tax on income as Chinese exports are now cheaper. It is negative though as China is trying to strengthen its positioning against Western economies and to try and take trade away from Western competitors.

Although the Chinese economy is slowing with the current expected growth rate around 6.5% compared to around 7% a year ago, 6.5% growth is much higher than in current Developed Markets with the UK last posting 2.6% and the US around 3.9%.

If we look at how the True Potential Wealth Strategy Fund Range has performed we can see that the highly diversified, multi-asset nature of the funds has helped to protect the investors from much of the downturn in equity markets.

Global Equities fell around -5.8% in GBP terms since the currency devaluation earlier this month, which compares to funds within our Balanced range, such as the True Potential Schroders Balanced Fund, which has fallen around -2.0%. Although, it is never a good thing to write about negative returns and we can see that the investor has suffered losses, this loss is nowhere near as bad as if they were 100% exposed to equity markets, illustrating how a diversified portfolio can help protect investors in times of volatility.

We are still awaiting comments from all of our underlying fund managers, but we have an initial comment from Goldman Sachs below.

“Goldman Sachs see potential for further market weakness and volatility over the short term. They are maintaining their asset allocation, including a slight overweight to equities and keeping their bond duration short, still expecting rates to rise in the US this year.”

We can see from the above that they are expecting volatility and possibly more market falls within the short term but they are all keeping the same asset allocation and have not changed their views. This highlights to long term investors that now could be a good time to add to your positions within the True Potential Wealth Strategy Fund Range and to take advantage of the favourable prices that are available in the markets currently.

Looking forward for China and the US, the ability for China to stabilise itself in the near term, and rebalance in the long term, will be the key for stockmarkets to return to health. In the US, the lack of a convincing and synchronised global growth rebound, a stronger US Dollar, falling oil prices and the lack of inflationary pressures suggests that the Fed will likely continue to be patient and support the market.

As we receive more information on this we will continue to keep you updated.

 

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The information contained here is believed to be correct at the date of publication. The value of investments can go down as well as up, so you can get back less than you invest. The information contained within this blog post is not personal advice based on your circumstances. We aim to provide information to help you make your own informed decisions. If you are unsure about the suitability of an investment please contact your adviser for advice.

Your capital is at risk, investments can fluctuate in value and investors may not get the amount back they initially invest. Past performance is not a guide to future performance. Tax rules can change at any time.

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