Chinese New Year resolutions could be good for investors

The Chinese New Year begins this Sunday (18th February) and investors who believe the coming year will bring renewed good fortune have a choice of Chinese funds, says Shauna Bevan, Charles Stanley’s collectives analyst.

Shauna Bevan says: “China was the world’s best performing stock market in 2006, achieving a 98.94 per cent in local currency terms (73.98 per cent in sterling terms). While professionals often take it as a sign that a market has reached its peak when private investors show this level of interest, Charles Stanley disagrees.

“Yes, the market is likely to be more volatile and liquidity may be an issue, and yes, there is operational risk, political risk and exchange rate risk and the market itself is very fragmented with an alphabet soup of different types of share. But despite all this we believe China will continue to perform well relative to other regions for the foreseeable future, and for those investors willing to assume the risk we would be happy to recommend all of the following funds.”

Jupiter China

This fund was launched at the end of 2006 following Philip Ehrmann's arrival at Jupiter from Gartmore where he ran the Gartmore China Opportunities fund. His approach is to identify major themes and then through detailed analysis to identify stocks geared towards them. He aims to invest in growing companies at reasonable prices. Current themes include infrastructure spending, domestic consumption, agricultural development and environmental issues.

JF China & JF Greater China

Both funds are run by the long established and highly regarded team which was originally part of Jardine Fleming. There are fund managers based throughout the region (with additional support coming from joint ventures in both Shanghai and Taiwan). All have research responsibilities and the process is driven by fundamental analysis with a focus on company meetings. Their long standing and expertise in Asia means that they have good access to initial public offerings (IPOs) of which there are an increasing number in China.

Aberdeen Global China Opportunities

The lead fund manager is Hugh Young who heads up Aberdeen's global equities business but whose day-to-day responsibilities are managing the teams based across Asia from the regional headquarters in Singapore. Like JF, the team is very well established with a strong reputation. Aberdeen's investment philosophy is based on identifying quality companies with strong management, good growth prospects and reasonable valuations. This emphasis on quality means that the funds can underperform their respective benchmarks in strong, momentum-driven markets. We would regard this as a more conservative choice with the possibility of correspondingly lower returns.

Atlantis China Fortune

Atlantis is a boutique fund management business specialising in Japan and Asia with $3.1bn of assets under management. They run two China funds. The China fund - a long only fund with a bias towards medium and small cap companies - is currently closed to new investors. The China Fortune fund targets lower volatility by using cash (up to a maximum of 75 per cent) and futures and will trade tactically in large caps and IPO's. The long term strategy of both funds is the same, with approximately 50 per cent overlap in the companies held, but the approach to market timing is different. The manager is Yang Liu, with analysts based in Hong Kong and Shanghai. An alumnus of the University of Finance and Banking in Beijing in the mid 1980s, Yang leverages contacts within the top levels of Chinese businesses. The portfolio differs quite considerably from the benchmark (the MSCI China Free Index) of which more than 50 per cent is made up of just six companies.

The JF, Aberdeen and Atlantis funds are domiciled offshore and denominated in US dollars. They have distributor status for UK tax purposes.