• Colonial First State eyes discounted stocks in China, CIO says
  • China stocks provide opportunity to diversify portfolio

Colonial First State is eyeing discounted China securities as it seeks to lift its emerging markets exposure to diversify its portfolio.

Chief Investment Officer Jonathan Armitage is looking to boost the developing markets exposure by around 2-3% at the firm where he oversees A$150 billion ($101 billion) in pensions and wealth. Along with China, Korea and Taiwan also have valuations that are “attractive relative to US equities,” he said.

CFS currently has no exposure to China. Optimism is building ahead of the meeting of the country’s top leaders this month that measures to boost consumption will be rolled out to revive the sluggish stock market. Still, some investors are losing patience as a long-awaited recovery in earnings fails to materialize and a rally unravels.

“There’s a lot of quite bad news discounted in equity valuations across a wide range of Chinese securities, and so that is an area that we are spending quite a bit of time looking at,” he said in an interview. While there are “some very strong reasons” for the weak sentiment in Chinese markets, it may also present an opportunity, he added.

Armitage said he was currently looking at equity markets “through an active manager or potentially through an index or synthetically.” While valuations were a factor, he said he was keeping a close eye on policy statements from Chinese authorities.

“Historically, I think investors have thought that the authorities in China would come out with very dramatic policy adjustments in order to boost the economy,” he said. “You’ve seen a shift in that,” adding that policy statements had instead been more “drip, drip.”

Australia’s A$3.9 trillion pensions system just rounded out the financial year through June with average returns around 9% for the widely used balanced option, according to SuperRatings, a research firm. CFS’s balanced option returned 12.1%. About half of the country’s pension assets are now invested offshore after firms increased overseas exposure in recent years.

Written by:  @Bloomberg