GAM Star China's Mok rotates into growth names

Mansfield Mok, co-manager of the £812m GAM Star China Equity fund, has begun reversing his stance from defensive to growth as share prices discount a bleak outlook.

Mok and co-manager Michael Lai have so far shifted 10% of the fund from defensive names to growth-orientated stocks in the expectation China’s economy will remain robust. 

They have sold out of a 6% China Mobil holding as well as a 4% position in a property investment trust in favour of good-quality growth stocks.

“Growth stocks have derated and, because I am confident in the Chinese economy, these valuations look attractive, especially in consumer staples and discretionary,” said Mok.

“When all the fear goes away, fresh money will come back and will bring a positive return for Chinese equities.”

Mok Said Chinese companies are much better positioned than they were in the 2008 financial crisis because they are less heavily leveraged and better equipped to tap into growth.

In addition, China’s move to focus on domestic consumption over exports has boosted its domestic market.

The GAM manager has long avoided financials and is underweight Chinese banks.

However, he does hold some insurance companies and some Hong Kong financials, which he sees as benefitting from the internationalisation of the renminbi.

“Bank valuations are attractive, but in terms of growth they are limited,” said Mok.
“This is because the recovery will not be broad-based and only impact certain sectors.”

Mok is also cautious on the commodities sector, describing valuations as fair.

“There is still some concern on the global economic recovery, which will lead to a drop in oil demand, and the impact of a potential windfall tax on resources,” he said.

However, he is less concerned about the impact of the eurozone crisis on Chinese growth.

“In terms of fear, we are in a much better state to cope with a crisis this time round. I am not too worried about Europe – we know the solution. Now it is the time for different parties to negotiate a better deal,” he said.

He warned a major event could prompt the Hong Kong index – the Hang Seng – to face big swings in volatility. The index could whipsaw between the 16,000 to 20,000 mark up to the end of the year, he said.

Chinese inflation, meanwhile, will remain under control at about 6% this year, falling to 5% in 2012, Mok forecasts.

GAM Star China Equity was reopened for investment in September, less than a year after GAM soft-closed the product when excessive inflows began to threaten performance.

The fund has delivered 114% over three years to 21 October against a peer group average of 64%, but has suffered in recent times. It is down over 30% over one year against a 35% sector average fall, according to Morningstar.