Reasons to be bullish in the Year of the Ox

Gigi Chan, Threadneedle China Opportunities Fund manager comments on the outlook for China: "One of the main challenges for asset managers regarding Asian markets in the first quarter of the year will be to assess how far the fiscal packages unveiled to date will go to offset the effects of the downturn in global trade. The construction and basic materials sectors can be instructive in this regard as these are the early beneficiaries of planned infrastructure spending. The good news is that recent meetings have revealed that many companies in these sectors are raring to go on a range of government-funded projects. There is certainly no doubt that the funds being made available by the government are being put to work.

"The expectation, of course, is that the investment in infrastructure will trickle down into the pockets of domestic consumers. It's too early yet for there to be any sign of the most recent fiscal injection in consumption data but evidence from a recent visit to Beijing and Shanghai showed that the domestic consumption theme that has been evident in recent years is still intact.

"It is striking to see the demographic changes happening in China. Some factories have closed in response to slowing exports; however, this is a rational response to a cyclical slowdown. The fact remains that real income has doubled in urban areas over the past few years.

"Despite this improvement in wealth, Chinese consumers are under-geared compared to western norms. The government is keen to maintain the momentum that has built up in domestic consumption and, to this end; it is encouraging loan growth of around 15% this year. Chinese banks don't have the problem assets that are hampering many of their western counterparts, so they are much more willing to increase lending.

Gigi Chan continues "I'm confident that the resulting consumption, together with government spending on infrastructure, will help mitigate the effects of slower global trade on the Chinese economy.

"As the year of the rat scurries into history, China's exporters are certainly facing testing times. However, the ongoing strength of the consumer sector, and the ability of the authorities to support domestic growth, suggest that there are reasons to be bullish in the year of the ox."