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The Shanghai market according to Gartmore's Charlie Awdry
Since the start of the year, the Shanghai market has fallen approximately 20%. Charlie Awdry, manager of the Gartmore China Opportunities Fund, considers the reasons behind the fall and what the future may hold for investors.
Since the start of the year, the Shanghai Market is down approximately 20%. Charlie Awdry believes that this is due to several factors, namely; slowing economic growth, mounting concerns over bank balance sheets and government actions to tighten the monetary environment and to cool high end property price appreciation.
Nevertheless, Charlie has recently become increasingly positive on the outlook for Shanghai's companies sensing the possibility of policy loosening on the cards. Further, the government is likely to provide new stimulus to the economy in the form of a low cost housing programme starting in the fourth quarter of 2010 or early part of 2011. In addition, when compared to its own history the Shanghai market remains relatively cheap. Anecdotally, cash levels among local investors remain high which is a good contrarian indicator. Nevertheless, Charlie comments that, "we are beginning to find attractively valued, good companies in this market and since the start of July, the A share market has outperformed the H share market*." Charlie believes that the market implied discount rate differential between big and small cap stocks is very extended suggesting that there is relative value in the big cap index constituents e.g. banks and oil stocks.
The Gartmore China Opportunities Fund is again invested in the Shanghai market. Our primary exposure is to the famous local liquor brand Kweichow Moutai which has strong pricing power and excellent cash flow. Given capital constraints, it is difficult to find quota to add to the Shanghai market but our current exposure is 3% of the fund.
According to Charlie, "if the Shanghai market moves higher, this would be positive for Hong Kong based China shares that have lagged other parts of Asia in 2010."
Article last updated: Sep 2, 2010
Derek Bradley, CEO
Sarah Paul, Marketing Director
James Bradley, Head of e-Relationships
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