4 Trillion Renminbi Multiyear Fiscal Package By Chinese Government Represents 15% To 20% Of China GDP: Baring Portfolio Manager Sees Significant Upside Potential For Stocks
December 10, 2009 - The Wall Street Transcript has just published China & Japan Report offering a timely review of the Diversified Investments sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Khiem Do is a portfolio manager of the Asia Pacific fund at Baring Asset Management. He is responsible for the management of a number of specific Asian portfolios, and all Multi-Asset portfolios for clients located in Asia. He was appointed to become a member of the Strategic Policy Group, the company's global macro research and asset allocation team in 2006.
Khiem was the Head of the Asia Pacific Specialist Investment Team from 1997 through 2006. He has been a co-manager of the Baring China Absolute Return (long-short hedge fund) since July 2004. Khiem joined Baring Asset Management in 1996 from Citicorp Global Asset Management in Sydney, where he was the Australian Chief Investment Officer, the chair of the Australian Asset Allocation Committee, and a member of the CGAM International Asset Allocation Committee.
Khiem's prior experience includes seven years at Bankers Trust Australia and seven years at Equitilink Australia Ltd. Khiem received his B.A. in Economics (Hons.) from Macquarie University (Australia). He was designated an Associate Member of the Securities Institute of Australia (the Australian CFA equivalent) in 1979.
TWST: What is your view of the Chinese government's stimulus program? Will it continue? How has it affected your choices in the portfolio?
Mr. Do: The stimulus program, which the Chinese government announced last year, actually includes some new programs but also some old programs, which were postponed in the year 2007 and the early part of 2008. The reason why they were actually postponed was based on the fact that commodity prices in 2007 and early 2008 jumped to very expensive levels. With the collapse in global trade, which resulted from the Lehman's bankruptcy in September, commodity prices experienced a substantial fall in the last quarter of last year. We believe that the Chinese government saw this as an opportunity either to start new or resuscitate old infrastructure programs.
In addition, there were a number of towns or regions in China which need to be repaired because of the floods, earthquakes and so on. This vigorous infrastructure spending helped to kick-start the domestic economy anew.
Low commodity prices prevailing at the start of this year also offered the Chinese government the opportunity to stock up on a number of key commodities, such as oil and copper, given the fact that they do have a lot of infrastructure spending to execute in the coming years.
This is all within the context of the 4 trillion renminbi multiyear fiscal package, which was announced last year, which is equivalent to 15% to 20% of GDP. You can just imagine how large the land masse of China is, and this is equivalent to having to build a network of highways, railways plus all the associated township infrastructure linking North and South, and East and West across the U.S.A. or Europe! It's a massive undertaking, all funded internally by the Chinese government plus some private equity participation.
TWST: So you foresee the rate of spending that's stimulus related growing in 2010 versus 2009?
Mr. Do: Yes, the growth will definitely continue.
TWST: Is that a significant theme in your portfolio?
Mr. Do: Yes, it is. As a result of this long-term infrastructure spending program and the shortage in a number of commodities, we have been holding core positions in a number of building materials, commodities and industrial companies in the Chinese sector of the fund.
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