Home / Equities / Why Blackrock is bullish on China

Why Blackrock is bullish on China


Listening to a podcast this week, it was eye-opening to hear an alternate view to the current simplistic views being espoused about markets being ‘overvalued’ or in ‘bubble’ territory. The point made on the popular Animal Spirits podcast was that the paradigm of markets has changed in the last few decades.

  • Those who invested through the GFC, or the Dot Com boom, primarily older Boomer-era investors, were naturally prejudiced by their experience to be more conservative, pessimistic and ‘expect the worst’. While this served them well during and following previous crises, it is clear the tables have turned.

    The last decade has been all about optimism and growth. Essentially, the more optimistic and aggressive you have been, the better your returns. There may well be many reasons for this but age and experience appear to be central. The latest bugbear of the ‘Boomers’ appears to be in China, with George Soros suggesting this week that BlackRock’s dual-pronged expansion into the region was a ‘tragic mistake’. 

    According to Soros, the Chinese government “regards all Chinese companies as instruments of the one-party state,” and hence investors should tread with caution. He was particularly concerned about BlackRock’s decision to expand its operations in the country, saying “it is likely to lose money for BlackRock’s clients and…..will damage the national security interests of the US.” 

    The US$9 trillion ($12.3 trillion) manager is among the very few managers, and seemingly the first approved by Chinese regulators, to distribute its own mutual (or managed) funds in the country. This could occur before the end of this year.

    The expansion comes at the same time that BlackRock’s research team, the BlackRock Investment Institute (BII), highlighted China as among the best opportunities for the year ahead. In its latest quarterly report the group is advocating for China to no longer be considered an ’emerging market’ and actually be considered separately to developed and emerging markets for the first time.

    BII is advocating for a significantly higher allocation in all portfolios, with Wei Li of BII saying “China is under-represented in global investors’ portfolios but also, in our view, in global benchmarks.” “It has the second-largest equity market and the second-largest bond market, and should be represented more in portfolios.” 

    BII recommends an allocation two to three times that of diversified portfolios, of which China is just 4.2 per cent of the MSCI, with a potential increase of up to 10 per cent. One of the key drivers is the increased focus on quality growth, which gives it greater confidence in the future opportunity. 

    “China is pushing through reforms that could weigh on the quantity of growth in the near term but potentially improve the quality in the long run,” the BII report suggests. The country is also following a more ‘orthodox’ policy response to stimulate and cool its economy in contrast to the QE and fiscal stimulus in the US and Europe.

    Li acknowledges there is “greater uncertainty” following the recent crackdowns but concludes by saying: “it’s not about eliminating the risks; it’s about, are you being rewarded for the risks? We believe we are being compensated.”

    Drew Meredith

    Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.

    Print Article

    T+1 settlement an ‘unstoppable force’ Australia needs to adopt, or risk falling behind

    The frictionless movement of assets is becoming a common feature of markets around the developed world, yet Australia remains a step behind. The ASX is in no mood to rush the move to T+1, however, after its calamitous attempt to implement distributed ledger technology.

    Tahn Sharpe | 16th May 2024 | More
    Banks present savvy value play through crisis fears and tech frenzy

    The global banking system has proven both resilient and lucrative for investors since it seemed to teeter on collapse just over a year ago. The turnaround highlights the kind of alternatives available for those that don’t see enough value in the prevailing big tech stocks.

    Tahn Sharpe | 16th May 2024 | More
    Expectations matter, and the market’s ‘big fluffy toys’ have set a historically high bar: Orbis

    Valuations at the top end of indexes are sky high, but with that comes inflated forecast earnings. For savvy investors, it may be time to rotate towards more value-oriented stocks according to Eric Marais from Orbis Investments.

    Tahn Sharpe | 22nd Apr 2024 | More
  • Popular posts: