Why have an exposure to China when it has been so volatile over the last year?

Author -  Keith Poore, Head of Investment Strategy

Keith Poore, Head of Investment Strategy at AMP Capital, said AMPs China equity exposure is Hong Kong listed, which has a benchmark (MSCI China) return of -9.1 per cent over the year to 31-August in Hong Kong dollars, but 19.4 per cent in New Zealand dollars.

“We do not hedge China or other emerging market equity exposure. This means that while Chinese shares may fall in valuation, the New Zealand dollar will often fall as well, and that can offset what happens in China’s share market. To date, the Kiwi dollar fall has outpaced China shares, buffeting returns and giving local investors a positive return.” 
 
Over the last 10 years the return for the benchmark has been 10.6 per cent in Hong Kong Dollars and 11.6 per cent in New Zealand Dollars.
 
“Ultimately, volatility is the price an investor pays for higher returns. When we are through this period of high uncertainty and volatility, then solid earnings growth coupled with low valuations should see better returns from China shares over the next few years.
 
“We expect China’s economy to grow around six per cent over the next decade compared to growth of around two per cent for developed markets. Higher economic growth in China should underpin higher company earnings growth.
 
“Taking a closer look at valuations, China shares are trading on a price-to-earnings ratio of nine, so investors are paying $9 for every $1 of current earnings. Compare that to say the United States or developed market shares, where investors are paying $17 dollars for every $1 dollar of current earnings,” Keith said.

Why have an exposure to China when it has been so volatile over the last year?

Spicers portfolios do not have exposure to China’s domestic share market, which has been on a roller coaster ride of late.
Keith Poore, Head of Investment Strategy at AMP Capital, said AMPs China equity exposure is Hong Kong listed, which has a benchmark (MSCI China) return of -9.1 per cent over the year to 31-August in Hong Kong dollars, but 19.4 per cent in New Zealand dollars.

“We do not hedge China or other emerging market equity exposure. This means that while Chinese shares may fall in valuation, the New Zealand dollar will often fall as well, and that can offset what happens in China’s share market. To date, the Kiwi dollar fall has outpaced China shares, buffeting returns and giving local investors a positive return.” 
 
Over the last 10 years the return for the benchmark has been 10.6 per cent in Hong Kong Dollars and 11.6 per cent in New Zealand Dollars.
 
“Ultimately, volatility is the price an investor pays for higher returns. When we are through this period of high uncertainty and volatility, then solid earnings growth coupled with low valuations should see better returns from China shares over the next few years.
 
“We expect China’s economy to grow around six per cent over the next decade compared to growth of around two per cent for developed markets. Higher economic growth in China should underpin higher company earnings growth.
 
“Taking a closer look at valuations, China shares are trading on a price-to-earnings ratio of nine, so investors are paying $9 for every $1 of current earnings. Compare that to say the United States or developed market shares, where investors are paying $17 dollars for every $1 dollar of current earnings,” Keith said.
Why have an exposure to China when it has been so volatile over the last year?
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