Get cheap China exposure with JP Morgan

Now is an interesting time to be buying a China and Greater China fund. Greater China equities rebounded in the third quarter of 2013, thanks to improving economic data in China as well as the delay in US tapering.

The recent Third Plenum held by the Chinese Government provides scope for wide-scale change in areas such as market reform, power pricing, infrastructure, healthcare, property rights, the judicial system and the one-child policy. These reforms should help the Chinese economy move from one with a strong manufacturing base and export advantages - to one with a greater reliance on domestic consumption and services, according to Mick Gilligan, head of research at Killick & Co.

As a result, Chinese equities, and companies with an exposure to China, should perform well next year. Analysts reckon the stock market’s success is far from over - but there are still some bargain funds waiting to be snapped up.

We like the JP Morgan’s Chinese Investment Trust (JMC), which is trading on a particularly wide discount of 11.52 per cent. This trust has a good pedigree of investing in Greater China companies, and with a 1.41 per cent ongoing charge it's cheaper than Anthony Bolton's popular Fidelity China Special Situations (FCSS).

The manager, Howard Wang, took charge of the trust in February 2006, and it outperformed until the end of 2007. Over three years it has underperformed the benchmark (the MSCI Golden Dragon index) though, losing 7.59 per cent total NAV return over the period to 14 December 2013. It’s picked up over the last year though, managing a healthy 9.80 per cent return, and beating its benchmark by 3.59 per cent.

Like Mr Bolton's Fidelity China Special Situations, JP Morgan Chinese is structured as an investment trust, so it can borrow to invest where appropriate, and use accumulated reserves to pay dividends (although the yield on its shares is small at 1.14 per cent).

However, it has a longer track record, having been set up in 1993. Another advantage it has is a wider remit than Fidelity's offering. It focuses on investing in 'Greater China' companies headquartered in China, Taiwan or Hong Kong, using on-the-ground expertise and local presence. 22.9 per cent of its assets are Taiwanese, while Hong Kong also has 20.9 per cent of the portfolio - and this spreads the risk.

All three markets posted positive returns this year, with MSCI China being the best performer, as macro indicators continued to show an acceleration in growth and the government announced details for reform programmes, lifting confidence.

And these industries are benefiting from the growing population of Chinese millionaires. Despite a global recession and regional economic volatility, Chinese millionaires held 27 per cent of the country's wealth in 2012 (US$5.2 trillion), and this figure is expected to reach US$9.4 trillion by 2017, according to Wealth Insight research.

This is a cheap fund with a good track record, invested in a country exhibiting excellent growth prospects - and we reckon its best days could still lie ahead. Bag yourself a Chinese bargain while it's still cheap. Buy.