There have been plenty of reasons to get concerned about China's economic slowdown - but a prominent firm operating in the region argues that some of the worries are overdone.

One of the more prominent investment houses playing in the Asia-Pacific arena is Matthews Asia, the San Francisco-headquartered firm with $26.4 billion of assets under management (as of 31 October, 2015). The firm has outlined its views on recent developments to this publication (see an example here.) A few days ago, its chief investment officer, Robert Horrocks, said that Asia will, in his view, continue to outperform the global economy as a whole and poured some scorn on those whom he feels are becoming unduly worried about recent volatility and stock market declines in China. 

The recent market weakness in China stems from tighter US monetary policy which effectively started two year ago, as quantitative easing was reduced, or “tapered”, he said.

The MSCI China Index (in dollars) has fallen by 16 per cent since the start of January, sending a chill into other markets. Some investors argue, however, that concerns about how China will cope with growth deceleration have been heavily discounted already by investors and that markets are oversold. 

“China is trying to reflate its economy by increasing money supply. The market was scared because of memories of the Asian financial crisis in 1997 and the poor communications from China. Asia is nowhere near as vulnerable as it was in 1997 and is much better positioned and the economies are less vulnerable to shocks. Most of Asia has marginal deficits or are in surplus, inflation rates are largely below 3 per cent but even where they've been above (India and Indonesia) they've had a lot of success in bringing them down,” he said in a note.

Horrocks said there are challenges for China to confront. “There has been a significant amount of debt built up in the region over the last two years,” he said, but noted that the Asia region is “generally still less indebted than the more developed economies”. 

“There is a significant difference between Asia and most developing economies. Savings rates in Asia are much higher although the financial systems are not as well developed or as efficient so some of these savings may not be sufficiently allocated,” Horrocks said.

“What is worrying is the growth of total bank assets in China which are now 20 per cent year-on-year. At some point China is going to have to curb that growth relative to GDP. Although the asset growth has been fast it hasn't actually been backed by physical investment in manufacturing capacity, so it's difficult to know where the money has gone. The banking system is vulnerable as there are no real assets to back it,” he said.

Margin pressures have been more intense for firms in cyclical sectors than in is the case in more consumer-related areas, or in sectors such as healthcare, Horrocks said.