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Playing the contrarian post China rout

After more than six years on an upward run, global equities have largely flagged during 2015 so far.

Whether or not they will get a second wind – and just how far that wind will take them – is yet to be seen, and for some investors the best option is taking an unconventional route.

One possibility is China-related Japanese stocks – specifically ‘deep cyclicals’ – which Jeff Atherton, manager of the GLG Japan CoreAlpha Fund, highlighted alongside commodities exposure as his choice contrarian trade.

“Over the last few months we have been buying heavily into the commodities theme and China-related stocks,” he said.

“Japanese commodities and China-related stocks have been beaten up in the last few weeks, and they are as cheap as the consumer electronics names were in 2012.

“Every Japanese manager wants to exhibit the ‘Abenomics’ theme in their portfolio and will not have any China-related stocks in their top 10 – the real contrarian trade is for Japanese managers to go back into Chinese stocks.”

This conviction has seen Atherton’s Chinese ‘deep cyclical’ exposure climb to around 27% of his portfolio following investments in steel and shipping companies and trading houses.

In contrast, David Coombs, head of multi-asset investments at Rathbones, is looking at indirect plays on slowing Chinese growth – specifically opportunities in Latin America borne out of low commodity prices.

tom@ybc.tv

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