Recruiting in China

Investing in Chinese equities is not easy - even the most experienced investors can get their fingers burnt trying to find the right stocks to back in an opaque and volatile market - but one manager has a tip for would-be investors.

Mirabaud Asset Management's Daniel Tubbs has one golden rule to invest successfully in the region - align yourself with whatever the government wants to do.

The group's head of GEM and manager of the $108m Mirabaud Equities Global Emerging Markets fund said he has been choosing his investments according to government policy, backing the property and infrastructure sectors recently after an uptick in state support.

Tubbs (pictured) said the government's spending on infrastructure such as railways is accelerating, while it is becoming more relaxed about the property market after three years spent trying to dampen the bubble.

"Average house prices have increased 6% year on year, in line with wage inflation," said Tubbs. "We bought Yuexiu Property Company in January. It has a business on the eastern seaboard where there is still pent-up demand.

"It is one of the few property companies which has an investment grade rating, leading to a cheaper cost of capital, which is a big advantage for a property company. It has a 5% yield, trades on six times earnings, and has rallied a lot in the last few weeks," he said.

One of the government's long-term aims is to rebalance the Chinese economy towards domestic consumption, and it will do this by boosting income levels, said Tubbs. He owns China State Construction in the fund's top ten holdings as a proxy to this theme.

The manager argued investors are too fixated on economic deceleration in the BRIC countries, especially China, and said a hard landing is not cause for concern as long as the corporate sector remains robust.

Low summer trading volumes have meant swings in sentiment are exaggerated, he added. This has combined with incremental positive data in the developed world to create a home bias, which is why emerging market equities have been at the sharp end of a sell-off in the last few months, said Tubbs.

He is overweight Russia, Turkey, and China because he is still able to find quality companies to own in those markets and, in China especially, he is seeing encouraging signs of stabilisation.

"It is wrong to be pessimistic on China - it was hard for it to continue to grow at 10% a year," he said.

"I am not worried about growth decelerating as long as companies are still doing well. The Chinese companies we hold reported average net profit growth of 38% year on year in Q2, which is not bad considering the consensus forecast for the whole of China was in the teens.

"People have not given the government enough credit that it can manage the recovery."

Over the year to 27 August the Mirabaud fund has lost 2.91% against an average 0.11% gain from the Equity - Emerging Markets sector, according to FE.