There's a bear in the China shop. China is not the best emerging market to invest in, says Julian Thompson, Portfolio Manager, Threadneedle Emerging Markets Fund:

The sustainability of the investment cycle looks to be more favorable in parts of Latin America and EMEA (Europe, the Middle East, and Africa) than China. Much of China’s investment in recent years has been funded through local governments’ debt. If returns on this investment capital fall short of expectations, the debt-servicing ability of these governments may become problematic. This is a serious possibility, as we expect pace of China’s economic growth to slow in the near-term.

The Chinese economy has a long way to go before it meets the government’s goal of making domestic consumption a major component of its GDP. For this to be achieved, wages must continue to rise, which is likely to place upward pressure on inflation — and compel the government to constrain growth via monetary policy. Meanwhile, the financial sector in China requires capital in order to continue growing, unlike banking sectors in other countries — including banks in developed nations, which have largely recapitalized themselves in recent years. This, too, may hinder China’s economic expansion.

Threadneedle, est. 1994, has £60.5 bn under management, about $98 bn.

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