LGIM says not too positive on China; UK gilts offer value

By Naomi Rovnick

LONDON (Reuters) -China still faces a very difficult economic situation and it is hard to be positive on the world's second-biggest economy just yet, Legal & General Investment Management's Chief Investment Officer Sonja Laud said on Monday.

China will adopt an "appropriately loose" monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth, the Politburo was quoted as saying on Monday.

"You can't really stimulate away the excess in real estate that has been built over decades," Laud said at an LGIM outlook event with media.

"The domestic consumer cannot compensate for the weakness that we are seeing in particular unfold in the real estate space," she said, adding that potential U.S. tariffs were another headwind.

"We're not too positive on this."

China's economy has struggled this year, prompting policymakers to act in September, with the central bank unveiling its most aggressive monetary easing since the pandemic, cutting interest rates and injecting 1 trillion yuan ($140 billion) into the financial system, among other steps.

Donald Trump's U.S. election win in November also poses a challenge. Trump late last month outlined "an additional 10% tariff, above any additional tariffs" on imports from China.

Laud added that, separately, UK gilts offered value, with the UK budget now digested by markets and the Bank of England likely to continue lowering interest rates.

LGIM manages over a $1 trillion of assets.

Britain's government bond market has underperformed its peers this year, with yields on 10-year gilts up roughly 75 basis points this year. In contrast, U.S. yields have risen 29 bps and German peers, just 7 bps.

On Europe, Laud said it was difficult to position given heightened political uncertainty in France and Germany - the euro zone's two biggest economies.

Germany is expected to hold a snap election in February, while France is mired in its second political crisis in six months.

Asked about the United States, Laud said she was focused on the inflationary impact of potential U.S. tariffs, noting that markets could dial back bets on Federal Reserve rate cut for next year.

(Reporting by Naomi Rovnick, Writing by Dhara Ranasingghe, Editing by Amanda Cooper)

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