It is impossible to frame an economic outlook and hence a long-term asset allocation picture for domestic or international assets without understanding what is taking place – and what may continue to take place – in China.
Full In Focus feature, Investing in China remains a long-term game, is available here
China is rightfully regarded as an emerging global economic powerhouse, and certainly in recent years all eyes understandably have been on how the Government there manages its booming economy, but it’s not simply that growth will continue indefinitely, nor necessarily even at current levels.
Clearly, however, a growth rate in the region of 8 to 9 per cent a year will inevitably throw up outstanding opportunities for investors. However, investors first have to identify those opportunities and determine whether the risk of pursuing them is worthwhile. Assessing how best to access the opportunities is another matter.
Direct or indirect
There are several approaches that investors can take. One is to invest in China either via direct equities or a managed fund that focuses on that country alone; another is to invest in an Asian fund or in Asian equities that benefit from the growth and development of China; a third is to invest in a global emerging markets fund; and a final approach is to invest in a global equity fund, which may include companies that are benefiting from the growth of China.
Briana Lam, a senior investment analyst with van Eyk Research, says it’s a good idea for anyone attracted to the concept of investing into China to first carefully assess the exposure they may, perhaps unwittingly, already have.
If an investor is wondering whether they should have an exposure to China at all, Lam says “the short answer would be: ‘Yes, but…’”.
“There’s things you need to be aware of,” she says.
“A good starting point would be to assess what is your current exposure to China. Perhaps if you’ve got even just an Australian equities exposure, I’m sure that everyone is aware that a lot of Australian companies are heavily exposed to the China growth story. That’s something that you should be aware of.
“Even some fund managers cannot say specifically that X per cent of a certain company is exposed to China, but just to have a broad overview of that would be a helpful starting point.
“Then you move on to, exactly how much exposure do you want? Depending on that, you can either go into a direct China fund; there are several available in Australia that we rated back in 2010. Or you can go for a slightly more diversified approach – regional Asian equities funds, which typically will have 30 per cent or so exposed to China, either through Chinese stocks directly or via Hong Kong or even Taiwan – we refer to them as Greater China.
“Or you can access them via the next level: global emerging market funds, and I guess that as you progress, the exposure to China diminishes.”
Steven Sweeney, a senior investment analyst with Lonsec, says even though recent returns from exposure to China might have been disappointing, it remains an interesting area in the long term.
