Hargreaves Lansdown suggests three funds to play China

22nd October 2013

China is the cheapest equity market, relative to its own historic valuations according to an analysis by investment firm Hargreaves Lansdown. Chinese GDP rose to 7.8% in the 3rd quarter of 2013, up from 7.5% in the 2nd quarter.

The firm says investing in China comes with many caveats, but a focus on the long term should deliver returns.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, says: “The outlook for China has been negative for some time.  Weaker economic growth has raised fears of a hard landing, whilst fears of a credit crunch rose as a new political leadership took steps to address the shadow banking system.  The nature of China’s command economy means they can divert resources quickly to stimulate growth, although this may result in a misallocation of resources. Investing in China is challenging, economic data is not as transparent as in the west. Momentum is against China, for share prices to rise investor sentiment needs to change.

“However investors should put aside the short-term challenges and focus on the long term. The fact remains that growth rates in China are much higher than in the West. Earnings continue to grow but share prices have not yet followed and Chinese shares are cheap as investors focus on the negatives and disregard China’s growth”.

HL says that China investors should consider drip feeding their money in through monthly savings and focus on the long term while a diversified approach, using a global emerging markets fund, would reduce the single market risk for investors.”

Investment suggestions

First State Asia Pacific Leaders – Investors gain access to one of the most experienced Asian equity managers, Angus Tulloch. He is optimistic about the long-term prospects of the Asia Pacific region and  Greater China, at 34%, is a significant part of the portfolio.

Jupiter China – Philip Ehrmann, manager of the Jupiter China Fund, thinks the days of double-digit GDP (Gross Domestic Product) growth in China are over. The government is pursuing a more balanced economic growth policy, realising it is quality, not quantity that counts. The fund invests in mid and smaller companies.

Fidelity China Special Situations – Managed by Anthony Bolton the fund has outperformed the MSCI China Index returning 11.2% compared to 5.2%.  The fund has a focus on mid and small companies and is therefore likely to underperform in weak markets and do well in rising markets.  Anthony Bolton will step down in March 2014 and will be succeeded by Dale Nicholls.

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