China to bounce back

China’s growth prospects have improved.

Though its economy lagged this year, the downturn was largely caused by strict monetary tightening over the last two years, says Raymond Chan of Hamon Investment Group. The company manages the Renaissance Asian Fund and Renaissance China Plus Fund.

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He adds, “The economy bottomed out in 2012, and we then started to see incremental progress going into the fourth quarter of 2012 and first half of 2013. The economic data released in October 2012 marked the turning point of the expectations or the perceptions of global investors about China’s growth prospects.”

Read: Will China’s economy improve? He predicts we’ll see incremental improvements into the fourth quarter of this year.

“In terms of absolute numbers, 7%-to-8% growth is respectable in a global context,” says Chan. “The main problem facing investors over the last two years was the ongoing devaluation of growth in China.”

This spiral hurt the market and investor confidence, causing global capital to flow back into Hong Kong; it offered less risky, direct exposure to the Chinese economy going into 2013.

Read: Bet on smaller Asian countries

In mid-November, markets were also affected by the introduction of new political leadership in China. Since that transition is still in the progress, the move has caused ongoing political uncertainly, says Chan.

He adds officials should focus on growth, as well as on reforms to help boost investment. In addition, he finds fiscal stimulus isn’t necessary at this point, with positive momentum and growth already being detected.

Read: China to exceed target growth rate

Though the country’s leaders haven’t been confident about growth data in the past few years, Chan says the new leaders are positive about the coming year. Expansion is steady at 7%-to-8% and housing data has been optimistic.

“It’s a good number…given the size of the economy,” he adds. “It’s about US$7.5 trillion. Also, 7%-to-8% growth is incremental GDP—more than US$500 billion per annum. That’s a decent number given the state of the world economy.”

He also stresses China can’t be expected to outperform the struggling global economy. Since all markets face a challenging road ahead, it’s preferable to have quality growth at current levels rather than having officials try to boost expansion at significant costs.

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