The latest Chinese growth figures are spooking the markets. Growth slowed from 6.8% in the first three months of 2018 to 6.7% in the second quarter. These figures come against the backdrop of an escalating trade dispute with the US.

China has appealed to the World Trade Organisation over the tariff exchanges and the International Monetary Fund has argued there could be a $430bn hit to the global economy from a trade war.

The negative news from China has an outsized impact on UK stocks and the FTSE 100 in particular, thanks to the bias towards commodity-focused stocks. A slowing Chinese economy puts pressure on global commodities because it is a leading consumer of metals and energy.

A recent report from Henderson International Income Trust (HINT) revealed nearly 30% of UK dividends come from oil and mining stocks, more than double the proportion from the same sectors internationally.

In the longer term slower Chinese growth may be an inevitable consequence of a transition from an export-driven to a domestic consumer-driven economy. As investment bank UBS observes this will result in ‘lower but more sustainable growth’.

It adds: ‘In addition to China’s significant size, the country is undergoing important structural shifts which should offer tremendous investment opportunities.’

Historically investing in the domestic Chinese equity market has been difficult due to restrictions on foreign ownership. However, access is opening up.

Asset manager Schroders recently launched a fund focused exclusively on onshore China A-shares called Schroder ISF China A-Share (LU1713307426).

Choosing from a universe of 3,500 stocks, the fund focuses on small and mid-cap names in fast-growing areas like technology, healthcare and consumer goods. (TS)

‹ Previous2018-07-19Next ›