China will deliver the highest equity returns in 2017, despite prominent warnings that a slowdown in the world’s second largest economy presents one of the biggest risks to the global financial system, according to a poll of 9,000 UK investors.
Over a quarter of UK investors believe that China will outperform every other major region, according to the survey of users of Interactive Investor – more than six times the proportion last year.
Europe was the second most favoured, followed by Latin America and Japan. The top two regions from last year – the UK and the US – fell to fifth and sixth respectively.
China’s rise in investors’ favours comes despite a slew of major economists saying that leverage levels could risk global financial stability.
Bank of England governor Mark Carney had previously cautioned that China’s “extraordinary” levels of debt were one of the most significant risks to the UK economy, echoing warnings from the International Monetary Fund.
The Organisation for Economic Co-operation and Development (OECD) also expects headline GDP growth figures to fall over the next two years to 6.1 per cent in 2018, from 6.7 per cent last year.
The US is widely overlooked by UK investors, with only seven per cent believing recent stock market highs will continue. US indices have hit repeated highs since the election of Donald Trump as US President, as investors have tilted into riskier assets in expectation of a massive fiscal stimulus.
Meanwhile, UK investors have a positive outlook on European equities, despite a series of political events which could trigger sell-offs. Elections in the Netherlands, France, and Germany – and the ongoing banking problems in Italy – all have the potential to undermine confidence in Europe.
But the UK – which has seen the post-Brexit currency devaluation weighing on dollar-terms indices – slipped from first to fifth. The prospect of continued uncertainty as the process of leaving the European Union begins has led to some stalwart financial institutions planning to move some operations to Europe.
Rebecca O’Keeffe, head of investment at Interactive Investor, said: “With US stocks at record highs and the UK heading into the unknown, our investors appear to be shifting their gaze elsewhere. An obvious place to focus is those markets that have underperformed this year.”