Samir Mehta: A stealth bull market in China means it’s time to revisit Asian equities

Local investors appear to be driving renewed interest in China stocks, argues Pendal’s SAMIR MEHTA

• Chinese companies are buying back shares

• Valuations are cheap

• Find out more about Pendal Asian Share Fund

WHEN asked about President Trump’s first few weeks in office, David Axelrod – former adviser to Barack Obama – said: “I think he will get credit in the short term for being a whirling dervish of activity. The question is, what does that activity produce?”

The Whirling Dervishes, according to Wikipedia, are most famously associated with the Mevlevi Order of Sufism – a mystical branch of Islam, which emphasises inner spirituality and direct personal experience of the Divine, often using poetry, music, and bodily movement as pathways to God.

Ironies abound.

I am fully aware that commenting on geopolitics is above my pay grade. We stock-pickers normally eschew commenting on macroeconomics or geopolitics.

But the investment landscape has changed since the 2008 Global Financial Crisis — and continues to rapidly evolve — so we need to adapt our process, even if at the margins.

Most of us were forced to incorporate the effects of actions by central banks or government-directed economic policies or geopolitical convulsions. There are pivotal moments when these factors (rather than specific stock attributes) influence – and even alter – investing landscapes.

Since President Trump’s inauguration, the flurry of executive actions and foreign policy initiatives are nothing less than spectacular.

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The Paris Agreement on climate change and principles of ESG are now by the wayside.

Free trade and globalisation are fettered by tariffs and transactional diplomacy.

Speeches by US vice-president JD Vance and defence secretary Pete Hegseth have rudely shaken European complacency.

Now President Trump has escalated a war of words with Ukraine’s President Volodymyr Zelensky, calling him a “dictator” and deepening a rift between the two leaders.

Europe is being dragged by the scruff of its proverbial neck from adolescence into adulthood. In fact, Europe might be weaned away from US security guarantees.

Trump even talked about inviting Russia back into the G8. Suddenly, Russia might be investible again.

And China, perceived as the arch-enemy, is no longer so different from allies like Canada and Mexico.

That begs the question: will the US Government tear up the restrictions of investing in Russia and China?

I wouldn’t bet on it, but then again, I wouldn’t have expected Europe’s current plight either.

Change of heart for China?

Meanwhile, Chinese President Xi met with private sector executives, including Jack Ma (who was famously cut down to size in November 2021) and Liang Wenfeng (the founder of DeepSeek).

Optics matter in China. Is this a change in heart by President Xi towards technology and the private sector? Or is it that state-directed spending on projects of national importance (chips and AI) have failed to deliver?

Ironically, China’s lead in AI was established by the founder of a hedge fund without much help from the government at all.

A stealth bull market in China has crept up on us. In my opinion, local Chinese investors will most likely drive this market.

Bond yields are close to 1%, there is some stability in the property markets, and deflation might have temporarily plateaued.

Sporadic stimulus measures are helping at the margin. Now, scores of companies are trading with dividend yields north of 5%, with business models that are only marginally cyclical.

Loads of companies are buying back shares and valuations are still cheap.

From here, it seems all signs point to revisiting Asian equities as an asset class.

About Samir Mehta and Pendal Asian Share Fund

Samir manages Pendal’s Asian Share Fund, an actively managed portfolio of Asian shares excluding Japan and Australia. Samir is a senior fund manager at UK-based J O Hambro, which is part of Perpetual Group.

Pendal Asian Share Fund aims to provide a return (before fees, costs and taxes) that exceeds the MSCI AC Asia ex Japan (Standard) Index (Net Dividends) in AUD over the medium-to-long term.

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About Pendal

Pendal, part of Perpetual Group, is a global investment management business focused on delivering superior investment returns for our clients through active management. 

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