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China funds: Olympians and also-rans

Created:
6 August 2008
Written by:
Moira O'Neill

Investors who want to get exposure to China can choose from a handful of country-specific funds. Notable actively managed open-ended funds include Gartmore China Opportunities (managed by Charlie Awdry) and Jupiter China (managed by Philip Ehrmann who previously ran the Gartmore fund). These two funds posted the top and third best performances out of all UK mutual funds in 2007.

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If you want a lower-risk fund, then look to the Asia Pacific ex-Japan sector, where there are plenty of more diversified fund options.

There are also a variety of investment trusts offering different levels of exposure to China. Only one, JP Morgan Chinese, offers country-specific exposure. However, the AIC has compiled a list of 12 investment trusts that offer significant exposure to China (see table).

Investment Companies with highest exposure to China

Fund China (%) HK (%) Taiwan (%) Total (%) 1Y 3Y 5Y
JPMorgan Chinese 42 30 26 98 90.95 153.75 210.16
Henderson TR Pacific 30 13 9 52 86.48 143.81 199.95
Pacific Assets 16 19 17 52 82.6 152.24 248.42
Fidelity Asian Values 6 30 15 51 88.16 149.36 231.03
INVESCO Asia 5 27 15 47 94.6 153.66 237.93
Schroder Asia Pacific 7 25 12 44 88.99 143.53 235.91
JP Morgan Asian 12 19 7 38 91.67 154.67 233.7
Henderson Far East Income 6 15 17 38 93.82 118.51 180.89
Edinburgh Dragon 7 19 7 33 98.94 147.89 239.83
Martin Currie Pacific  10 13 9 32 81.1 136.22 227.52
Aberdeen New Dawn 3 19 7 29 91.38 138.18 245.6
Aberdeen Asian Income 2 9 12 23 102.76 - -

Figures show share price total return on £100 to 30 June 2008 (less 3.5% charges)

For more on China and Asia funds, see our fund data tool.

It is also possible to get exposure to China through low-cost exchange-traded funds (ETFs). Lyxor ETF China Enterprise tracks the Hang Seng China Enterprise Index and has 38 per cent exposure to Chinese banks.

The Lyxor ETF Hong Kong tracks the Hang Seng Index and has a 35 per cent exposure to Chinese banks.

Also, look at ETFs that track the MSCI Asia Pacific ex Japan index, which has plenty of exposure to China, such as the Lyxor ETF MSCI AC Asia Pacific ex Japan and the iShares MSCI Far East Ex-Japan.

Private client wealth manager Thurleigh Investment Managers give clients exposure to China through the iShares FTSE BRIC 50 ETF which follows the performance of the largest companies in Brazil, Russia, India and China. It has three Hong Kong companies in its top 10 holdings ("but this is mainly in Brazil").Thurleigh also puts some clients' money into the iShares MSCI Emerging Markets ETF, which aims to reflect the return on the equity markets of the world's emerging markets as represented by the MSCI Emerging Markets Index. This fund has one Hong Kong holding - China Mobile - in its top 10.

The iShares S&P Emerging Markets Infrastructure fund also has plenty of exposure to China, with four Hong Kong companies in its top 10 holdings.

For more on China ETF's, see www.lyxoretf.co.uk and www.ishares.com.

Some companies listed in London offer significant exposure to Chinese economic growth. For more on these, see our recent feature London's best China shares and Five Aim China shares to watch

How much to invest

The terrible performance of the Chinese stock markets in the first half of this year, serves as a reminder that emerging markets are volatile and investors should only commit small portions of their portfolios to these countries. Five per cent seems to be the general consensus among investment advisers.

Charles MacKinnon, chief investment officer at Thurleigh Investment Managers, puts China into perspective: "Our equity exposure matches global GDP. People forget that China's GDP is only the size of the UK's. In the UK we have 4-5 per cent exposure in our growth portfolio. The Chinese economy is the size of the UK in GDP terms. But nobody would say the UK is going to be the engine of the world and pull us out of recession. People underestimate the importance of the UK and overestimate China. The US represents 50 per cent of global consumption. If that falls it doesn't help China. Getting America right is key."

Back to main feature: How to win gold in China

China and Agriculture investment note

Barclays Stockbrokers has launched a new investment note giving investors access to Chinese Equity markets and agricultural commodities.

The note is a five-year growth investment linked to the performance of a basket of equities and commodities and is designed to provide 125 per cent of any rise in the basket.

The basket is made up of three indices and weighted as follows:

- FTSE Xinhua China 25 Index: 40 per cent.

- S&P GSCI Agriculture Excess Return Index: 30 per cent.

- S&P GSCI Livestock Excess Return Index: 30 per cent.

The FTSE Xinhau Index includes the top 25 Chinese companies by total market capitalisation, giving access to diverse sectors of the Chinese economy such as telecommunications, petrochemicals and banking. In order to get exposure to the global agricultural commodities market, investors will gain access to the S&P indices, which are primarily driven by grain and meat prices.

Investors can put as little as £500 in the note.

Henk Potts, equity strategist at Barclays Stockbrokers, says: "China remains one of the world's most interesting long-term growth stories, but the short-term macro risk is larger than usual. Despite this we still see China as one of the best long-term growth stories in the world.

"In agricultural commodities, there are tight supply/demand balances and market dynamics, with low customer inventories. In terms of commodities, we remain positive on price prospects on the back of lower and delayed 2008 UK corn plantings, strong Chinese demand, expanding US ethanol output, rallying crude oil prices and low inventories. All of which leads us to believe that prices will rise."

Investors in investment notes may choose to receive the capital protection offered by holding the note to maturity on 22 August 2013 or selling the note before maturity to realise shorter term gains.

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