Alex Crooke is the fund manager of The Bankers Investment Trust (BNKR), which aims to grow both capital and income over time by investing in an internationally diversified portfolio. He believes Chinese mainland A shares in Daqin Railway (601006:SHH), a railway company in north China, offer value as the company looks set to grow and has an attractive yield.
"There is value in this market. A year or two back when everything was on high price to earnings ratios China was still hitting new lows, despite the fact that between 2008 and a couple of years ago when we started looking at China earnings had gone up. Our interest in 'A' shares was principally about value, but also growth. China is still delivering strong wages and gross domestic product (GDP) growth - levels which Europe would die for.
"Access to mainland growth is limited but China A shares offer a broader spectrum of sector exposure than Hong Kong shares, and you can't own assets such as a railway company via a western listed company which does business in the country. China A shares offer a more accurate representation of the Chinese economy.
"With Chinese companies you have to ask how much you trust the accounting so we have a small allocation to A shares which in aggregate account for about 4 per cent of the portfolio. They are a good diversifier as they are not highly correlated with western markets.
"Our holdings include Daqin, a railway company principally involved with coal. It offers value as it was very cheap when we bought it and should offer growth, while the yield is about 5.6 per cent. The company is also well managed.
"The Chinese are also expected to embark on state enterprise reform which may involve them starting to sell off assets. Daqin could increase its assets by buying some of these off the government.
"Risks include if the Chinese government turns off coal power stations but in the short term that is not an issue – they still need coal. A rapidly slowing economy would also be detrimental but most surveys show that electricity consumption is growing."
Mr Crooke initiated his holding in Daqin Railway on 29 November 2013. The company represents less than 1 per cent of the portfolio.
