So, for every emerging market, we have a framework of analysis, where we look at a variety of drivers, some are economic, some are more financial, and some are political. We try and use those to ascertain what we think are the risks and opportunities of that market.
One of the challenges for China is that most of those have been flashing negative for us for most of the last two years. The growth environment looks extremely difficult.
They’ve not been able to provide the same stimulus as they did in previous downturns. The liquidity and credit environment, relatedly, looks much more challenging. There’s been such a bit build-up of debt over the last decade, it’s unclear whether they can easily inject more into it.
We’ve seen a lot of weakness in the currency, partly related to a weakness in the Japanese Yen. But still a drag for US Dollar-based investors. And then, politics has been the really big one, and it does look like Chinese politics has, to some degree, broken both the economy and financial markets.
Valuations are attractive in China, but those alone should never be a case for investing in the emerging markets. And so, until you see a change in the economic direction, or a change in the political environment, it’s very hard to be positive on China.
So, for now, we remain defensively positioned. One of the strengths of our process is we can allocate away from China and into preferred markets. That’s very much what we’ve done. We find opportunities in, perhaps, some less covered parts of the emerging world, parts of Latin America, the Arab Gulf, India.
But at the same time, our process is alert to new opportunities. And so, perhaps the stimulus will work, domestic politics will improve. Perhaps the international politics will improve. Our process is structured to alert for when that happens. But for now, it’s difficult for us to see opportunities in China.