Chinese growth to be sustained in the medium and long term

Baring Asset Management (Barings) believes that problems in credit markets will not derail the long-term secular growth story in China and Asia. At the Baring Spring Investment Conference William Fong, manager of the newly-launched onshore Baring China Growth Fund, stated that valuations in China have become more attractive following the recent market correction and that both medium and long-term prospects for the Chinese economy remain positive.

The Baring China Growth Fund two week offer period commenced today, 1 May 2008. It is a UK domiciled Open-Ended Investment Company (OEIC). The fund may invest in small, medium and large listed companies, within any sector and geographical region that has the potential to benefit from the growth and development of China. The fund may also invest in derivatives. Barings also launched an offshore China-focused fund in April 2008, the Baring China Select Fund, which is an Irish domiciled Open-Ended Investment Company (OEIC).

William Fong comments: "We firmly believe that China and Asia represent fundamentally bright spots in an increasingly gloomy world and that economic fundamentals in the region should act as a strong buffer against the events in the US credit markets. Domestic consumption is in full bloom, the Renminbi is continuing to appreciate and we believe that secular growth and improving corporate governance will drive a re-rating.

"Despite a reduction in risk appetite on the part of investors, which has prompted a more-or-less indiscriminate sell-off in high beta markets globally including Asia, we strongly believe that this represents an opportunity for investors prepared to take a medium to long term view. Monetary tightening and measures to increase food supply should reduce inflationary pressures, especially in the second half of 2008, and fiscal spending on infrastructure should stimulate the economy and buffer any potential deceleration in exports."

At a stock level, a key theme of the new Baring China Growth Fund is to focus on identifying beneficiaries of consumption growth in China. In addition, the fund manager will look for beneficiaries of strong infrastructure spending, including construction companies and railway operators, as well as restructuring plays and industry consolidators.

William Fong continues: "We do not see a change in the economic fundamentals and the secular growth story of China and Asia. Corporate balance sheets in the region are as strong as ever, and the rapid build-up of domestic savings and the recycling of petro-dollars should continue to attract increasing asset allocation into this region, while valuations have become more attractive following the recent correction.

"It is true that concerns over inflation and credit tightening in China have added to the negative sentiment in the market. However, we have long argued that the key to long term growth in China is about sustaining a steady GDP growth of 7%-11%, not returning to a period of volatile swings in growth as we saw in the 1980s and early 1990s. A short-term tightening or slow-down in growth would still leave the growth numbers at a healthy and manageable level, in our view."