CHINA’S slowing economic growth has hurt two of its large suppliers: Japan and Europe. Both pay their way in the world by making things, much of which they sell to China, so it’s no surprise that they are more sensitive to the health of the Asian powerhouse.

We are happy with the long-term outlook for China, although we expect a few wobbles along the way. It’s hard moving from being a giant factory nation to a more services and tech-led economy, increasingly driven by household spending.

But we believe Chinese leaders have a degree of control of society and economy that Western nations just don’t have. Also, the sheer clout of China as a market means the rest of the world cannot ignore it or let it fail. For us, the real weaknesses are those nations that rely on them as a customer. Europe and Japan both flirted with recession at the turn of 2019 as China’s economy hiccupped, but it’s only Europe that makes us truly nervous.

Japan should be able to shrug off the recent drop in trade, we believe. It’s closer to China than Europe is, and therefore sends a larger proportion of its exports to the Middle Kingdom.

However, we think its politicians – while not perfect – are doing the right things to try to improve the country, its labour market and its economy. Important reforms to Japanese businesses over the last few years have made them leaner, more profitable and generally better able to roll with the punches. Also, we think the nation will keep benefiting from the growing Chinese middle classes who are increasingly travelling to the archipelago on holidays.

Europe, on the other hand, looks exceptionally fragile to us. And not just short-term fragile, but fundamentally broken in a “back to the drawing board” kind of way. We see the EU as flawed and fundamentally difficult to invest in. That’s not to say we don’t own some great European companies, it just means we struggle to make sizeable investments there on the Continent’s own economic merits.

At base, European culture seems intrinsically anti-business to us. Added to that, its government is at once too unified and not unified enough. Sharing a currency and an interest rate-setting central bank with a grab bag of other nations, each with its own goals, problems, strengths and weaknesses sets you up for a problem. Not agreeing to co-operate on how to spend governmental cash flows virtually guarantees it. It means you will always have member countries with monetary policies that are too loose for their booming markets at the same time as others are straining under the same onerous rates (to them). Not to mention the budgetary straitjacket each country’s government has to wear while trying to run their nation.

All of these issues could probably be summed up by Italy today. This country’s debt-bomb is bigger than you think, with the ability to upend the European debt market if it goes off. A tenth of the loans made by Italian banks have gone bad, according to the European Central Bank. Even worse is the absolute total of Italy’s bad debts: at €159bn it is easily the highest of any country in the bloc.

Suffice to say, we find much better places than the Continent to put our money to work. Mostly, that means the US, which sports businesses that you just can’t find anywhere else. Companies that dominate the digital world, facilitate payments all around the globe or own brands that virtually everyone aspires to have. We also invest in China and Japan.

Despite the slowing Chinese economy, Asia is the fastest growth engine in the world and we think it will remain so for the next decade, probably longer. Investors spend a lot of time worrying about the short-term ups and downs of the region, but we believe the biggest risk is not investing there.

David Coombs is a fund manager at Rathbones.