China liquidity boost to benefit cyclicals, says Fidelity's Ma
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Chinese cyclical stocks are likely to benefit from the country’s recent moving to boost lending and maintain economic growth, Fidelity’s Raymond Ma argues.
Raymond Ma
Over the weekend, the People’s Bank of China (PBOC) announced that the required reserve ratio (RRR) will be cut by 50 basis points effective from February 24. The RRR applicable to large-sized banks will be 20.5%, while mid and small-sized institutions will face a ratio of 18.5%.
Ma, manager of the Fidelity China Consumer fund, says the move, which follows a cut in early December, suggests the PBOC will look to increase liquidity during the new year and predicts that further monetary loosening will take place over the first half of 2012.
“Historically, Chinese equities tend to outperform during the monetary easing cycle and vice versa,” the manager says. “Hence, this cut should send very constructive signal to the market and Chinese equities are expected to react positively to the cut.” (article continues below)
Chinese companies should benefit from faster growth and higher profits if the RRR cut is successful in boosting liquidity in the market Ma adds. Cyclical sectors, such as luxury retailers in the consumer discretionary space, are likely to outperform as a result of the move.
Ma holds 16.94% of the Fidelity China Consumer fund in consumer goods companies, while 25.72% of the portfolio is allocated to financial services stocks.
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