Chinese engineers behind the wheels

"The fact that today's Chinese leadership is dominated by people with a strong interest in technology - with President Hu Jintao and seven out of nine members of the Politburo's standing committee having an engineering background - might be part of the explanation why China has been so successful in transforming itself from a low-tech manufacturing nation based on low cost labour to a country today competing head to head in high technology" said Gustav Rhenman.

However, moving up the value chain might entail that China’s giant surpluses are likely to become even larger. Between 2004 and 2009 the Chinese trade surplus has risen from USD32 to 250 billion, and currency reserves are today the world's largest amounting to USD2.45 trillion. Gustav Rhenman singled out the growing imbalance coming from the increasing dependency of the US on China as a significant geopolitical risk that could affect investor sentiment globally. "Still, China has so far been successful in  handling these tensions and I see no reason to believe this would change in the coming years."

Commenting on concerns regarding a possible slowdown in Chinese growth - which he considers being overstated - he said "short term set-backs would not undermine the compelling investment case and the long term growth potential of China, which is supported by a massive urbanisation trend and a population becoming wealthier and eventually spending more".

Turning to valuations Gustav Rhenman commented that investors should be reconsidering which valuation metrics to use for a market such as the Chinese one with much higher growth prospects than in the developed world. At the same time he stressed that an active stock-picking approach and many company visits within China enable him to find stocks with attractive valuations and an excellent risk-reward ratio. "That is one of the reasons I am very pleased to join forces with East Capital as I will have more time and resources to dedicate to this work".