Enter the dragon

The Asian growth story and China’s emergence into the outside world remains as compelling as ever. Could now be an opportune time to invest?

Just as the “American Dream” inspired millions to strive for wealth with the belief that anyone can live the dream by working hard, I believe that China’s emergence as a supplier to the world is creating a similar situation. Its not hard to imagine that in a society built on work ethic, growing confidence about China’s place in the world today is spurring on a desire to succeed through hard work.

The remarkable economic boom we have seen as a result of China’s loosening of economic policies has inadvertently resulted in prosperity for China’s population.

All sectors are benefiting from this growth in consumer spending, from those who manufacture goods, to the retailers who sell them and those marketing their products.

We believe that one of the best ways of capturing China’s extraordinary growth potential is through the Challenger China Fund which is managed by Halbis, a specialist investment business within the HSBC group.
The fund is actively managed and is run by, Richard Wong Investment Director and Head of Halbis’s China Investment Team.

 

Richard’s aim for the fund is to exploit mispriced stocks where the market has overreacted to temporary or short-term events. He believes that due to the high volatility and lack of publicly available data (relative to major stockmarkets), Halbis’ on the ground in-house research and analysis gives them a ‘research edge’ allowing them to take advantage of short term ‘mispricing’.

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This month we posed some questions to Richard Wong concerning the current investment opportunity in China and where he sees opportunities over the coming year

China has shown rapid double digit economic growth in recent times, can this be sustained?

“The economy is well supported by strong domestic consumption (retail sales up 18.8% year on year in November 2007) and investment (fixed asset investment up 26.8% year on year in November 2007). Therefore, we do not expect a marked slow down in growth.”

What would happen in the event of a US-led recession?

“A US recession may marginally lead China’s export growth to slow, but the impact is unlikely to be severe. Over the past few years, China has increasingly broadened its export base and reduced its dependence on the US which only accounts for about 21% of China’s total exports.”

China is obviously benefiting from being host to the 2008 Beijing Olympics. Will there be a lull afterwards?

“The equity market has benefited from infrastructure spending in the run up to the How to Olympic Games this year and tourism-related sectors will also benefit. However, there will not be a sharp market decline after the games. China is a vast country with strong growth happening nationwide and not limited to Beijing. We do not expect an economic slowdown after the Olympics. If there is a market correction after the Olympics, we believe it would represent a good buying opportunity.”

Which sectors offer the best opportunities and why?

“Opportunities can be found amongst consumer related, travel, infrastructure, selected commodities such as coal, cement on the back of China’s rising income and spending power and the rapid fixed asset investment (for example road, rail, power plant) to keep up with China’s high GDP growth.”

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With corporate tax being cut from 33% down to 25% in January 08, the Beijing Olympics and a growth in domestic income and consumption, we remain bullish in for China for the short term at least. Recent market volatility is likely to create mispricings in stocks that an actively managed fund like the Challenger China Share Fund is likely to benefit from.

As a local fund manager fund that’s part of the HSBC group, we feel that Halbis are in an excellent position to offer investors the best potential for returns in this sector.

Asian stock markets are high risk and volatile, so can rise and fall sharply in a short space of time. We’ve seen this in the last few months with China, so we suggest clients keep their overall exposure in emerging markets below 20%, however this could be an excellent entry point to benefit from Asia’s long term growth potential and the Challenger China Share Fund is an excellent fund choice.

HOW TO APPLY

Download online: Download a copy of the PDS direct from our website www.fundsfocus.com.au/latestoffers By post: You can request to a hard copy of the Challenger China Share Fund PDS by calling us on 1300 55 98 69 or using our online request form on www.fundsfocus.com.au/latestoffers