J.P. Morgan Asset Management positive on Greater China markets in 2011

Jan 05, 2011

J.P. Morgan Asset Management believes that China's sustained growth momentum, will continue to benefit Greater China markets going into 2011.

Hong Kong, 5 January 2011: J.P. Morgan Asset Management (JPMAM) believes that China’s sustained growth momentum, supported by domestically-driven secular growth and favourable liquidity conditions, will continue to benefit Greater China markets going into 2011.

Speaking at a press conference today on the market outlook for the Greater China region in 2011, Howard Wang, Head of the Greater China team at JPMAM noted, “Despite inflation pressure, rising asset prices and policy tightening concerns, we remain optimistic about the Chinese economy as it undergoes long-term re-balancing towards domestic consumption and re-positioning towards more sustainable, higher-quality and potentially more profitable growth. We believe China will continue to deliver solid growth in 2011, with both fixed asset investments and consumption being key growth drivers.”

“Whilst rising inflation pressure remains a key concern in the short term, we expect the CPI to ease by July and policy makers to move proactively as they did in deflating the property bubble. A tightening of monetary policy and further controls by the government are widely expected this year, with loan growth and rate policies the key levers, along with administrative controls as necessary. That said, even though the challenges of non-performing loans and asset bubble risks have receded in the past year, they are underlying concerns not to be overlooked in 2011.”

“We expect the retail sector, backed by supportive government policies, favourable demographics and income growth, to outperform the overall economy. Broadly-defined consumption sub-sectors, such as entertainment, high-end consumption and healthcare will experience further growth. The consumption sector and its significant growth potential underpin our optimism for the new year.”

Commenting on Hong Kong, Howard pointed out that investor concerns over asset bubbles, the government’s reaction to hot money inflows and further measures to rein in property prices may dampen sentiment towards the equity market in the near term. Nevertheless, the real economy stands to benefit from resilient economic growth in China and an improving global economic environment.

“As Hong Kong remains a beneficiary of loose monetary conditions, aided by the currency peg to the USD and openness of the economy, cheap money and capital inflows will likely continue to fuel domestic growth as well as asset inflation. A combination of quantitative easing and sustained China growth means the government will inevitably be faced with the formidable challenge of managing potential asset bubbles.”

“Following the unprecedented stamp duty measures to curb the rise in the property market towards the end of last year, we expect to see further policy headwinds in the residential property market this year despite favourable supply and demand conditions. That said, we expect a solid year for retail and office-driven property prices given economic fundamentals. As a result, we maintain our overweight position on the local property and banking sectors with the latter well-positioned to benefit from overflow loan growth from China as well as further RMB internationalization.”

Taiwan, on the other hand, presents a slightly more mixed outlook as external challenges and domestic opportunities unfold in 2011.

“Taiwan’s export growth is very much dependent on the global economic recovery. An evolving role for Taiwan is imminent as its cost advantages are being challenged by low-cost competitors from China and Taiwan’s global market shares in IT products are peaking. Taiwan technology companies have been undergoing transformation as they seek to climb up the value-added chain and shift away from low-cost manufacturing models to focus on building up core competencies and differentiation in branding, product design and distribution.”

“Taiwan’s domestic sector will continue to benefit from improving cross-strait relations. It is worth noting that the Economic Cooperation Framework Agreement (ECFA) has created a conducive business environment that will help re-accelerate Taiwan’s growth by raising China exposures. Future crossstrait talks should increasingly focus on services sectors like tourism and healthcare. Companies that already have a foothold in China are well-positioned to reap multi-year benefits arising from the ease of doing business across the strait. Financials, transports and the retail sector should be the major beneficiaries. Stronger domestic consumption will bode well for both consumer staples and consumer discretionary.”

In JPMAM’s view, valuations in the Greater China markets are reasonable relative to the attractive growth opportunities. JPMAM remains overweight Greater China consumption and continues to look for domestic-themed ideas that represent attractive risk-adjusted return profiles, increasing the breadth and depth in the selection of consumption stocks.

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For further information please contact
Daniel Chui, Head of Investor Communications
Telephone: (852) 2800 2874
Email: daniel.wc.chui@jpmorgan.com

Harriet Ngan, Internal & Media Communications
Telephone: (852) 2800 2776
Email: harriet.hy.ngan@jpmorgan.com

Issued by JPMorgan Funds (Asia) Limited

Notes to Editors
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J.P. Morgan Asset Management is a global asset management leader providing world-class investment solutions to clients. With over US$1.3 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at 30 September 2010) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

Commitment to Hong Kong
JPMAM’s investment management business in Asia has remained headquartered in Hong Kong for more than three decades and today has about 500 employees based in this location. JPMAM and its investment arm - JF Asset Management - are one of the largest local investment managers in Hong Kong with over US$90 billion (30 September 2010) of funds managed across the Asia Pacific region. As part of a major global investment group, we are committed to providing specialist teams with the resources needed to deliver successful products and performance to our clients. The Hong Kong-based Pacific Regional Group, together with the local presence of the Global Portfolios Group, forms the core of JPMAM’s investment management operations. In addition to the knowledge and experience of our individual investment professionals, the stability of the team has enabled JPMAM to develop strong relationships with local clients.

This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.  References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are not available for actual investment. The information contained herein employs proprietary projections of expected return as well as estimates of their future volatility. The relative relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

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