Fund manager Amundi shifts assets from US to China

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Europe’s largest asset manager, Amundi, is abandoning US assets in favor of China, attracted by the country’s better economic outlook, better valuations and more favorable outlook for inflation.

Vincent Mortier, chief investment officer of the Paris-based fund firm, which has assets of €2.1bn, thinks “too much risk” is priced in Chinese credit and high-quality companies, while markets in the US United are “too optimistic” as a recession looms.

“We’ve made a clear shift from west to east in our allocations,” Mortier said in an interview with the Financial Times, predicting that the US economy will not grow next year while China, India and Indonesia will each grow 5 to 6 percent. hundred.

Here comes Mortier’s bullish stance on the world’s second largest economy political tensions between Beijing and Washington deteriorate and recent consumer and industrial activity have been well below expectations.

In late January, a top US Air Force general predicted that the United States and China would likely go to war in 2025, and Chinese spy balloons were discovered over the United States the following month.

While Mortier sees geopolitics as “a risk,” he thinks the balance of power is such that the US would try to avoid being too harsh on China. Amundi has gradually increased its allocation to China and India over the past 12 months and has accelerated the move this year.

“The United States should not underestimate China’s ability to react, escalate and then negotiate,” Mortier said. “I think China can make serious arguments to put pressure on the United States as well.”

Mortier is particularly interested in the opportunities in some Chinese corporate bonds, arguing that foreign investors have sold out without differentiating the quality of issuers.

“If you dig down you can find really good companies that you can buy for 50 cents on the dollar,” he said. “If you are brave or if you have some time it is very good.”

Amundi’s optimism about China comes despite a difficult period for its stock markets. The CSI 300 index is down 5.7% from its January peak.

The markets have been pushed down disappointing economic data. Although China’s economy grew a better-than-expected 4.5% year-on-year in the first quarter, industrial production rose 5.6% last month from a year earlier, but well below forecasts by an increase of 10.6%. Retail sales data also missed forecasts. But Mortier said he believes investor reaction may have been exaggerated.

“The data may look disappointing, but when you dig into the details it’s actually not that bad,” he said. “I think the markets may not have grasped the reality of what’s happening because there have been changes in the way data is produced.”

US markets are pricing in a “Goldilocks” scenario of low inflation, rate cuts, stronger earnings and a soft landing, but the likelihood of that happening is growing increasingly remote as financial conditions tighten. he has declared.

The US Federal Reserve’s Quarterly Opinion Survey of Senior Lending Officials last week showed that 46% of US banks plan to raise their lending standards due to concerns about loan losses and deposit flight .

Meanwhile, hourly wage growth was 4.4% year over year in April, which is likely to put upward pressure on inflation.

Mortier thinks inflation in the US and Europe will stabilize at around 3-4% in the years to come, but with some volatility that will make the Fed’s job particularly difficult due to how long it takes for monetary policy to have an impact .

However, it is not concerned about the possibility of a US debt default, which has pushed the cost of US Treasury insolvency insurance to the highest level since the financial crisis this year.

“We think Treasuries are safe,” he said. “We continue to operate this exposure as usual and also take some opportunities” to buy some.

Nonetheless, it favors emerging markets over Western markets as a whole and is increasing its allocation in both India and Indonesia where, like China, economic growth is becoming less dependent on exports.

“This is good news for these countries and less good news for the West,” he said.