Lang snaps up ‘heavy cyclicals’ in view China economic cycle is bottoming out

Ardevora co-founder and fund manager anticipates peaking inflation and looser lending rules will unleash new economic growth phase in China.

Ardevora co-founder Jeremy Lang has begun snapping up “heavy cyclical” stocks in the view China is nearing the bottom of its economic cycle.

The manager of the £5m Ardevora Global Equity fund has identified two catalysts which will signal the turn of the economic cycle in China – leading to a boost in global growth – and has already positioned his portfolio accordingly.

He anticipates peaking inflation in China and looser lending rules for banks as triggers for the government to revert to monetary easing and unleash new economic growth.

“What is going on in China is a classic economic cycle we have seen in the US or UK on countless occasions,” Lang said. “When everything is going too well, the government slams on the brakes by tightening monetary policy. This hurts for a while as it does its job of slowing down the economy.

“But as soon as growth starts to look worrying, the government will take its feet off the brakes again and stop holding everything back. We are well positioned for policy in China to start easing again.”

Former Liontrust manager Lang has already started to purchase early cycle stocks such as large-cap miners, Japanese equities, and stocks exposed to the US consumer.

“Big global miners have suddenly become very cheap again.

“We have been buying these on the way down while Japan was relatively early to feel the impact of China and then it had the tsunami – share prices there already reflect investors’ worries at a time when things are about to turn.”

In Japan, Lang said he has purchased a range of stocks, from retailers to car parts manufacturers.

In the US, he has also been buying retailers and healthcare, which is more exposed to the consumer than in the UK due to the fees involved.

“The US has been amazingly robust. Policy response has been much more aggressive than in Europe and there is no evidence to suggest the US consumer is behaving in a worrying way.

“We are sitting alongside Ben Bernanke who has said recently how confident he is in the US economy.”

Lang said the slow down in China has been wrongly blamed on the eurozone crisis when the government deliberately tried to slow down economic growth and lower inflation through a number of monetary measures.

What is happening in Europe, he added, is largely irrelevant as China will be the leader in global growth.

“We must pull our heads out of Europe and think in a global context. China is providing all the incremental growth that is driving global growth at the moment.

“The Chinese have tried to slow down a hugely overheated economy and have got enough firepower to restart it again, in contrast to Europe.”