By Sarah Morgan
China’s economic growth is slowing down from its typical rapid pace, but advisers say the slowdown isn’t sharp enough to create serious concerns for investors. In fact, some see opportunity in beaten-down Asian stocks.
In the fourth quarter, China’s GDP growth slowed to 8.9%, and growth for the full year came in at 9.2%, slower than 2010’s 10.4% growth. U.S. markets still rose following this news, possibly because the numbers – along with data on U.S. manufacturing and German sentiment — were better than expected, analysts say. But the slowing trend in China is clear: According to the IMF, China’s GDP growth peaked in 2007 at 14%, and isn’t projected to climb back above 10% within the next four years.
Because China has been a major factor driving demand for basic materials and commodities, the slower growth will certainly have an impact on the global economy, says Weyman Gong, the chief investment strategist for Signature Financial Management. But it doesn’t look like the country is headed for the kind of sharp slowdown that many analysts and investors had feared, Gong says. The central government is simultaneously trying to cool speculation in some overheated areas of the country’s economy and also supporting domestic consumption with stimulus programs like the construction of 36 million new housing units, he says. That balance suggests China’s GDP growth won’t fall to the 5 or 6% level that would constitute a “hard landing,” Gong says. “It would be a crisis if they slowed down to 5 or 6%,” he says.
Given that fears of dramatically slower growth in China appear overblown, and Asian stocks have fallen sharply in the past year, the region’s stocks are attractive, Gong says. The MSCI All Country Asia ex-Japan index has fallen 18% in the past year, for example. “We’re overweight Asia, because it’s cheap,” Gong says.
For individual investors, now could be a good time to pick up some emerging-market exposure, since these stocks fell significantly in the past year, says Bob Phillips, a managing principal at Spectrum Wealth Management Group. “Emerging-market stock prices might get cheaper but I think it’s an opportunity to buy into some of these countries at pretty good prices,” Phillips says. Country-specific products can be very volatile, however, so individual investors should stick with broader indexes, he says. Slower growth in China should also translate to slower growth in commodity prices, so investors could consider picking up some exposure to domestic consumer staples stocks that should benefit from lower costs and higher profit margins, Phillips says.