NEW YORK, Jan 6 (Reuters) - China will lead an economic slowdown in Asia this year -- but that's good news for investors, as it should avoid bigger inflation problems in the region, fund managing company Amundi said on Thursday.
Markets are expected to be choppy in 2011 as Beijing adjusts policy to fight inflation, but a foreseeable end to its monetary tightening cycle later this year could boost the return profile of Greater China's equity market, Amundi said.
"Investors should welcome, not fear, a slowing Chinese economy in 2011," Ray Jovanovich, who helps manage more than 650 billion euros at the fund manager, said in a letter to investors.
Asia is on the opposite side of most developed economies such as the United States, where deflation remains the main threat, Jovanovich said.
"A gradually moderating economy (in Asia) is exactly the prescription warranted to arrest the harmful side effects associated with the current inflation threat. We view a slowing economy as a positive signal for China; along with the rest of the Asian region, and the world, for that matter," he said.
China and India have been raising interest rates to stop an inflation spiral which threatens to cause a spike in prices of raw materials and energy.
More anti-inflation measures are expected in 2011, both in terms of monetary and fiscal policies, along with a renewed push for administrative measures, the fund manager forecast.
Amundi, which combines the asset management business of French banks Credit Agricole and Societe Generale, maintains a neutral portfolio position in China and a "significant" overweight stance towards Hong Kong.
"Monetary conditions in Hong Kong's banking system continue to be significantly boosted by both the acceleration in Renminbi internationalization policies and QE2 from America," Jovanovich said.
"We anticipate double-digit monetary base and credit growth in the Hong Kong banking system in 2011, which would eventually lead to further re-rating of risk assets such as equity and property markets."
The firm downgraded its asset allocation to India to neutral from significant overweight on worries that lower GDP growth and earnings estimates for the country still have to be priced in by markets.
It is also "constructive" towards South Korea, despite tensions in the peninsula, as it sees the won as "fundamentally undervalued."
Market performance in 2011 should be driven by key investment themes such as domestic consumption, machinery and capital goods, along with tourism, Jovanovich said, pointing to sectors that would benefit from medium-term secular growth trends.
He also forecasts public housing and healthcare activities will rapidly gain prominence in China in 2011.
By Walter Brandimarte
Source: www.reuters.com
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