The threat of a full-blown trade war with the U.S. is battering Chinese stock and bond prices this year, but targeted moves by Beijing to keep the country's economy on an even keel are giving some money managers confidence to begin hunting for bargains now.
The past month or two has seen the introduction of fiscal measures to ensure adequate financing for infrastructure investments; a relaxation on recently introduced rules to limit wealth management products; regulatory measures to support bank lending; and continued depreciation of the renminbi vs. the dollar.
Against the backdrop of an oversold credit market in China this year, evidence of that policy response kicking in has been "great to see" and is one reason Fidelity International's fixed-income portfolios are looking to add Chinese paper now, said Bryan Collins, a Hong Kong-based portfolio manager and head of Asian fixed income, at a July 24 press briefing in Singapore.
As of June 30, Fidelity's $4 billion Asian High Yield Fund, managed by Mr. Collins, had a 42.5% allocation to Chinese bonds, just under the Bank of America Merrill Lynch Asian Dollar High Yield Corporate Constrained Blended index's 44.84% weighting.
The relative "depth and breadth" of China's policy response helps make the credit of high-quality firms in that country more attractive than that of other emerging markets, Mr. Collins said.
Investors in the mainland's A-shares market make similar arguments. The 18% year-to-date drop in A shares is overdone, and the "extremely nimble" response of China's authorities over the past month or so shows they have "the fiscal and monetary tools at their disposal" to mitigate the impact of U.S. tariffs being levied on Chinese exports, said Pooja Malik, founding partner of San Francisco-based Asian equity boutique Nipun Capital LLC.
Compared to the 4 trillion renminbi ($588 billion) spending package Beijing deployed in response to the global financial crisis a decade ago, "China's government is now seeking to address growth concerns with a chisel instead of a sledgehammer," wrote Tai Hui, J.P. Morgan Asset Management's Hong Kong-based chief market strategist for the Asia-Pacific region.
And increasingly — in addition to the controls offered by a closed capital account and a restricted currency — policymakers can avail themselves of the monetary policy tools taken for granted in major developed economies.