William Blair on the silk road rally

From
Romina Graiver

Romina Graiver

Recently in Australia to promote William Blair’s Unit Trusts, launched last year, William Blair’s International and Global Equity Specialist, Romina Graiver, said the Chicago-based asset manager’s views of the China market have significantly changed over the past six months, following new leadership focused on avoiding a hard landing of the economy while switching from an infrastructure-oriented to a consumer-oriented model.

“The Government is taking the initiative to transform the previous pattern of economic development in China, which proved successful in the past, but poses risks for the future. They are implementing significant structural reforms in many areas among which is the key financial sector reform. We have seen the opening of the stock market with the launch of the Shanghai-Hong Kong Market Connect, which allows mainland Chinese investors to access the offshore market and foreigners to invest in the domestic Chinese market. A program that allows banks to swap short-term loans with long-term bonds and municipal bonds has been put in place, and that is going to be expanded,” Ms Graiver said.

It’s an approach that seems to be working – China has been the strongest performing market over the past year, with index returns ranging from 50-125%, far outpacing global equity market returns.

Ms Graiver said a two level strategy is in play. “One is turn off infrastructure, two is turn on consumer. We look for high-quality growth companies that can demonstrate high returns and quality products and services and some are in areas described by China as an area of priority.”

‘Made in China 2025’, she said, now includes IT, environment protection, aerospace and aviation, railroads etc.

“It’s about urbanization, communication and improvement in areas that matter. We look at China from a real bottom-up, stock picking market perspective and we find some interesting opportunities there. China is really leading the way in many areas. If you look at many IT companies/internet companies, you can see similar companies in the US using the model that China made in gaming/social media.”

Ms Graiver said China is moving away from the negative connotations associated with being a cheap producer and is moving up in the value added chain, producing much higher quality products.

“We don’t believe that this will stop any time soon,” Ms Graiver said. “This has to materialize in better companies turning out better products and profits. There is a lot of liquidity there to continue to support the Chinese market expansion. China is the big engine for Asia and the rest of the world, so clearly it being in good shape is good for everyone.”

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