China: long-term opportunities for the active investor

Fredrik Bjelland, portfolio manager of SKAGEN Kon-Tiki, recently joined SKAGEN having spent time living and working in Shanghai, China. Here he reflects on the investment themes the country has to offer and provides an insight into the world’s second largest growth engine, which offers significant long-term opportunities for the active investor.

The evident slowdown in Chinese growth could be deemed to be positive. While historically, Chinese authorities have used credit supply as a relatively brute lever to spur growth, this is unlikely to prove sustainable over the long term. The uptick in nominal GDP growth in China over the last 18 months has instead been partly driven by supply side reform; the authorities have started to tackle chronic overcapacity, especially in upstream industries and have become increasingly serious about clamping down on companies that fail to meet environmental standards. As a result, nearly 5 years of producer price deflation came to an end in 2016, which in turn has helped reduce leverage on the balance sheets of corporates.