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Mirabaud’s Tubbs: China’s corporates split on whether economy is really improving
by James Phillipps on Mar 08, 2013 at 10:37
Mirabaud Asset Management’s Daniel Tubbs says a recent a recent trip to the Far East has left him unconvinced China’s improving economic indicators are directly filtering through to corporate balance sheets.
Tubbs, the group’s head of emerging markets, visited Shanghai and Hong Kong last month, meeting 24 different companies, and says the findings were an eye opener.
‘The main reason I went was to get a sense of what was happening on the ground,’ he says. ‘Since the beginning of the fourth quarter, we have seen Chinese GDP improving and higher retail sales, industrial production and PMI numbers.
‘I wanted to see if that was being reflected at the corporate level and the response was very much split. Half had seen an improvement and half hadn’t, and those that had said it was only a gradual improvement rather than a significant pick-up.
‘There are always question marks over Chinese economic data and on the ground it was interesting to see that the improvements were not really feeding through to the companies as might have been expected.’
He also got a taster of consumer behaviour in Shanghai on a day off and found that the high end shopping mall packed with designer outlets was quiet, while the mid-market version over the road with local brands was ‘absolutely heaving’.
But this anecdotal observation does not undermine the case for China’s wealthy having an ever-growing appetite for consumer goods underlining his belief that the rich tend to spend more on luxury goods overseas.
‘If you are a wealthy Chinese person and have money to spend on luxury goods, it is preferable to buy overseas because China slaps higher tax charges on than the likes of Hong Kong or England,’ Tubbs said. ‘We own Prada as a play on Chinese domestic consumption and a lot of its strong performance has been driven by sales growth in Asia.’
Tubbs’s Mirabaud Global Emerging Markets fund was 2% overweight China at the time of the visit but has since trimmed back that position, albeit through taking profits on certain stocks rather than as a direct reaction to what he had found.
He says Chinese equities are on relatively attractive valuations, trading at 10x 2013 earnings, a slight discount to the MSCI Emerging Markets index at 11x.
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