U.S. President Donald Trump takes a drink of water. (Photographer: Andrew Harrer/Bloomberg)

BlackRock Worries About China Trade Tensions as Asia Funds Brace

(Bloomberg) -- BlackRock Inc.’s head of China equities, Helen Zhu, is keeping a close eye on U.S. trade relations as equity markets across Asia contend with the consequences of President Donald Trump’s protectionist proposals.

An impending announcement following an investigation by the U.S. Trade Representative’s office into China’s intellectual property practices, one that may lead to the imposition of tariffs on a wide range of Chinese imports, is her main concern. The Section 301 act is expected to have a “more significant impact” on both U.S. and China macroeconomics, she said.

Equity markets across Asia have had a tumultuous week amid the departure of Gary Cohn from the White House and the rise of trade hawks. After Trump’s announcement on proposed steel and aluminum imports last week, Hong Kong’s benchmark gauge slumped 1.5 percent and China’s Shanghai Composite Index slipped 0.6 percent. Cohn’s resignation sent those indexes down 1 percent and 0.6 percent respectively on Wednesday.

“Markets are likely to remain volatile, with the investment community navigating expectations of rising interest rates, U.S. trade and tax policies, jitters over where oil price is heading, and digesting all that alongside an assortment of macroeconomic data,” said Christina Woon, who is part of a team that manages an Asian equities fund at Aberdeen Standard Investments.

Here’s what fund managers in Asia say about the future of Asian stocks:

BlackRock, Helen Zhu

  • “Despite the recent market correction which was mainly triggered by turmoil in the U.S. market, Chinese equities’ fundamentals have not meaningfully worsened and valuations are still reasonable.”
  • She prefers financial stocks: banks, insurers and brokers.

JPMorgan Asset Management, Joanna Kwok

  • “Solid corporate earnings growth, driven by structural factors in Asia and underpinned by the positive global macro backdrop and by a weak dollar, is crucial for Asian equities.”
  • Stocks in consumer, financials and technology sectors have attractive opportunities in her “bottom up approach to stock selection.”
  • Kwok has taken some profit in the technology space after the rally last year but believes gaming and e-commerce sectors are benefiting from secular trends which will play out for years to come.

Aberdeen Standard Investments, Christina Woon

  • “Ironically, it is during these volatile times that opportunities present themselves more agnostically and you can pick up quality names that have corrected along with the broader market, more so than their fundamentals imply.”
  • Prefers companies that are beneficiaries of themes with “longer-term structural tailwinds” like like lower emissions, fuel economy, increased connectivity.

Deutsche Asset Management, Elke Schoeppl-Jost

  • She sees double-digit growth across most Asian markets this year though she doesn’t expect the same magnitude as last year.
  • Schoeppl-Jost has added Chinese cyclical stocks, consumer companies and financials to her portfolio and is looking to buy Indian shares as earnings results come through.

Manulife Asset Management, Kenglin Tan

  • Earnings growth is positive and valuations remain reasonable in Asia. She believes Indonesia’s recovery and growth are “most underappreciated” by the market.
  • Tan said some stock valuations are “grossly undervalued.”

BNP Paribas Asset Management, Caroline Maurer

  • Possible that Chinese equities take a breather in early 2018 after outperformance last year. This should represent good buying opportunity.
  • Says technology, consumption premiumization and mature industry consolidation will provide long-term opportunities for investors as Chinese equity markets should be “increasingly led by structural (more than cyclical) factors.”

Fidelity Investment Management, Kate Howitt

  • Four things to consider:
    • Global economy fundamentals
    • Equity valuations
    • Tightening labor markets
    • Shift from quantitative easing to quantitative tightening. It’s possible “we move into a brave new world of higher inflation, higher interest rates”
  • A fifth factor to consider: “tweets from Mar-a-Lago” as geopolitical events could alter scenario.

Janus Henderson Investors, Wee May Ling

  • Chinese stocks will be supported by profit and cash flow cycle that started in the second half of of 2016.
  • “We believe the opportunity set is more specific this year vs last, and we continue to find pockets of opportunity, be it in HK listed China equities, domestic A shares or U.S. listed China ADRs.”

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