(Yicai Global) Feb. 11 -- US fund management firm Fidelity International remains committed to its long-term China business plan and will continue its pursuit of a mutual fund license in the country despite the novel coronavirus outbreak that has claimed over 1,000 lives to date, its Chief Executive Anne Richards told Yicai Global in an exclusive interview.
Below is a transcript of the interview, in which Richards describes Fidelity's strategy as "moderately risk-on."
Yicai Global: The coronavirus came as a major surprise and is still not under control, but Chinese mainland stock markets recovered from their heavy blow when they re-opened on Feb. 3. US and European equities seem to be shrugging off the impact of the virus temporarily, what do you make of global market reactions?
Anne Richards: From an asset allocation perspective, we remain overweight equities and credit, but our portfolios have taken a mildly more defensive posture until clarity emerges around the full impact of the coronavirus epidemic on global growth and supply chains. We are still neutral on government bonds overall and anticipate continued accommodative policy from central banks throughout 2020.
Over the long term, we remain positive on China and Asia high yield, which offer exposure to higher economic growth rates and more monetary and fiscal firepower than other regions, but again note that the coronavirus impact could lead these markets lower in the short-term.
One area where we will see an impact on earnings will be among cyclical stocks such as energy companies, which are often the most sensitive to this kind of scenario and were already struggling to recover. The oil price has fallen around 20 percent in recent weeks on a drop in Chinese demand, meaning it has officially entered a bear market. This will have an effect on energy stock earnings per share and the overall EPS number globally. There could be support at the margins from Chinese and US consumers benefiting from lower oil prices, but much depends on how soon economic activity can get back to normal.
Generally, our investment team is taking a moderately risk-on approach, but a wide range of economic, domestic and geopolitical risks beyond coronavirus also persist.
YG: How much do you expect the coronavirus to impact China's economy in the first quarter and for all of this year? What financial tools does the Chinese government have to minimize the damage?
AR: While it is too early to quantify the true market and economic fallout from this outbreak, investors should expect some impact to be reflected in China's first-quarter macro data. I know the Lunar New Year is typically a high season for consumer demand, with plenty of additional spending, and the coronavirus outbreak means the opposite may be true this year.
To help soften the blow of the viral outbreak, national policymakers and local governments have joined together in recent days in a coordinated push to ease the financial and economic impact. The People's Bank of China injected net new liquidity of about USD21 billion via reverse repurchase agreements and cut the repo rate by 10 basis points. Fiscal policymakers are pledging tax breaks to struggling firms, local governments are seeking to lower borrowing costs for struggling small and medium sized firms, and the securities regulator is dissuading margin selling and allowing stock pledge contracts to be extended.
Further steps China could take include broader stimulus measures, such as more cuts in the reserve requirement ratio or reductions to benchmark lending rates like the medium-term lending facility or loan prime rate. Fiscal measures are also likely to be part of the tool kit, including a generous budget deficit with more pro-growth allocation, and more targeted reliefs on tax and social security collections, especially those designed to benefit SMEs.
YG: Fidelity is on track to transform your onshore private fund management business into a mutual fund which is aligned with your global modus operandi. What's your China strategy going forward and what opportunities do you see in China's wealth and asset management sector?
AR: Our long-term business plan and commitment to China is unchanged. China's asset management market is expected to grow more than four-fold over the next 10 years, and as one of the first global asset managers to establish a presence in China, we are committed to bringing global best practices and enhance the financial wellness of Chinese citizens. We have been investing in mainland Chinese companies for over 20 years and today we are a proud employer of over 1,000 employees in Shanghai, Beijing and Dalian.
China is a critical piece of our global strategy. In January 2017, Fidelity was the first global asset manager to register with the Asset Management Association of China as a private fund management company. Ultimately, we aim to offer mutual funds in China and we are and proactively applying for a mutual fund license. The long-term ambition is to participate in China's pension market, contributing to China's burgeoning three-pillar pension system in a meaningful way.
Editor: Dou Shicong