China’s Year of the Golden Tiger starts this weekend, bringing to a close a Year of the Ox which has been described as a year of fortitude and patience for the Chinese economy.
With the Chinese New Year approaching, investment managers have lined up to share their views on this investment sector in 2010.
Richard Wong, manager of the HSBC GIF Chinese Equity fund, believes that domestic consumption will remain a key driver for the Chinese economy this year. He beleives that despite the 60% rally, in US dollar terms, in 2009, the Chinese stockmarket has further to grow in 2010.
Wong notes that H shares and red chips (ie China companies listed in Hong Kong) are trading at around 13.5x forecast 2010 price-to-earnings ratio and offering a projected earnings growth of about 20% for this year. Prospects for economic growth also remains strong, with Wong predicting more than 8% GDP growth in 2010.
Gigi Chan, manager of the Threadneedle China Opportunities Fund, thinks that investors need to treat China in much the same way as they would treat a real tiger, with awe and fear.
The awe factor comes from the robust economic growth being generated in China, which has the capacity to drive profits in a range of markets and sectors. At the same time, China is in the vanguard of the coming wave of global policy tightening and, as such, the Chinese authorities currently embody the fear of policy error that looks set to haunt markets this year.
With the launch of Anthony Bolton’s much heralded new Fidelity China Special Situations fund set for later this month, China is likely to remain in the investment spotlight for the foreseeable future.
Should the Year of the Tiger, prospects for economic growth and the return of Anthony Bolton to fund management encourage investors to embrace China within their portfolio?
Investors should always take care to avoid investing purely because of opportunities for economic growth in a region, or the return of a previously winning fund manager. Investment decisions should be made for the longer term and be clearly linked to financial planning objectives.
These shorter term factors might influence small tactical adjustments to overall portfolios, but making significant sector bets is as risky as climbing into the tiger’s cage.
