Still rich pickings for China investors in the year of the rat

Chinese equity markets are well-placed to withstand a US recession as we enter the year of the Earth Rat, although investors should expect increased volatility, say the managers of three of the largest China funds available to UK savers.

Of the China equity funds listed on Fidelity FundsNetwork, the average return during the last twelve months was 29%, more than justifying 2007 as the year of the Golden Pig. Flows into China equity funds on Fidelity FundsNetwork surged by 237%. And despite turbulence on world equity markets, FundsNetwork has seen no lessening of appetite among UK savers for such investments so far in 2008.

Three managers of China equity funds with a combined value of more than £3.3 billion are unanimous in their view that the country’s economy is well-positioned to weather a downturn in the developed world. The recent sell-off on equity markets has also given rise to some attractive opportunities, say the managers of Fidelity China Focus, Jupiter China and Gartmore China Opportunities.

Martha Wang, Fund Manager Fidelity China Focus Fund, comments: “In the near term, the slowdown in the US is unlikely to significantly impact on China. It may actually benefit China, by reducing the need for more aggressive monetary tightening, and supporting the focus on more sustainable, domestically-driven growth. In terms of risk, inflation is a concern, as consumer prices rose quite strongly over 2007. This increase was primarily due to rising food prices, which I expect to abate, but I am also seeing signs of rising asset inflation. I am slightly concerned as this could lead to a slowing of key economic factors.

“I am finding opportunities within the consumer, healthcare and infrastructure space. In particular, I favour the underlying industry dynamics within these areas. In the near term, markets could see increased volatility given further macroeconomic tightening measures and a potential slowdown in the US. However, long-term fundamentals in China remain intact and I look at periods of weakness as buying opportunities.”

Philip Ehrmann, Fund Manager of the Jupiter China fund, comments: “In contrast to the well trumpeted concerns about the weakened state of the global economy, China’s problems appear to be the reverse – too much growth. Exports have held up, while domestic activity has been robust. As a result GDP growth for the year just ended is expected to exceed 11.5% with inflation remain close to an 11-year high. As a result the Chinese authorities are continuing their tight monetary policy in an attempt to rein in excess liquidity deemed to be circulating within the economy. Although these measures have had limited success to-date, they do suggest the pace of growth, or rather its sustainability, is a very real concern for the authorities in Beijing. In this instance, however, it has been a question of preventing overheating rather than meltdown!”

Charlie Awdry, Fund Manager of the Gartmore China Opportunities Fund, comments: “Although the US is still the world’s largest economy, global dynamics have changed and the Chinese economy became the largest growth contributor in 2007. Recent data releases indicate that the Chinese economy expanded by 11.4% in 2007, reaching its fastest growth rate in 13 years. While acknowledging the more volatile market environment, Charlie Awdry, Fund Manager of the Gartmore China Opportunities Fund, highlights that selling has taken place across sectors in a largely indiscriminate manner. “I believe that de-rating has been excessive in China, and not commensurate with the tighter monetary policy environment announced in December.”

China equity funds available on FundsNetwork

The first Chinese equity fund was available on FundsNetwork in 2000, the year the platform launched. By the end of 2007 there were 10 funds in this asset class available on the platform.

Fidelity China Focus Fund
First State Greater China Fund
Gartmore China Opportunities Fund
Fidelity Greater China Fund
HSBC Greater China Fund
Invesco Perpetual Hong Kong & China Fund
Jupiter China Fund
Neptune China Fund
Schroder ISF Greater China Fund
Threadneedle China Opportunities Fund

2008 – Year of the Rat

According to the Chinese Zodiac, the Year of 2008 is a Year of the Rat (Earth),which begins on February 7, 2008 and ends on January 25, 2009. A Rat Yearis a time of hard work, activity, and renewal. Ventures begun now may not yield fast returns, but opportunities will come for people who are well prepared and resourceful.