The next five-year plan from the Chinese government is likely to move the country from deflation to reflation, according to portfolio manager of Man GLG Asia Opportunities Fund, Andrew Swan. He says the focus will be on domestic demand to lift consumption levels in the economy.

“The Chinese government has described its next five-year plan as aiming to vigorously improve consumption as a share of GDP. This reflects the government’s desire to achieve balanced growth by providing greater economic incentives to increase household disposable income and boost consumer confidence to spend more in the local economy.

“If all the goals set out in the five year plan are delivered, it will positively impact investment markets as increased consumption will drive up corporate profits of Chinese companies,” says Mr Swan.

As with China’s previous five year plan there will be winners and losers, he says.

“The previous plan resulted in a fairly narrow set of winners, but it may be different this time around.

“The structural reforms that will encourage higher consumption will in turn drive prices higher. Higher prices have a positive impact on GDP, which bodes well for corporate profitability and for the broader equity market,” says Mr Swan.

In terms of trade negotiations with the US, Mr Swan says that China is in a stronger position than many assumed, as highlighted by with the recent trade tensions around rare earths.

“In recent weeks there has been a back down from the US on some of its trade threats. While this is good news, there still isn’t a permanent long-term solution that's been agreed, instead, we have seen a delay in addressing the trade issues at hand.

“As it stands, while the tariffs are still there, they are certainly lower than what was anticipated. Importantly, they are in line with some of the tariffs that have been placed on other countries in the region.

“This is not a bad outcome for China compared to what the market feared earlier in the year,” says Mr Swan.

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