CHINA: Long Term Growth Bright



And the gold medal for growth goes to ... Asia
Your investments China may not be fully 'decoupled' from the US yet,
but its long-term stamina is unquestionable

Heather Connon
The Observer,
Sunday April 20 2008
http://www.guardian.co.uk/money/2008/apr/20/moneyinvestments.globaleconomy

The recent commentary on China, India and other Asian markets has
focused on whether they will be hit by the credit crunch and the
slowdown that will inevitably follow. In the short term, there is
little doubt that the Asian markets will suffer some impact from a US
recession and slowing growth elsewhere. But the debate about
'decoupling' - the word of the moment - risks ignoring the fact that
Asia is already becoming the powerhouse of economic growth and that
this trend can only accelerate, regardless of short-term ups and
downs.

Burkhard Varnholt, chief investment officer of private bank Bank
Sarasin, points out that the Asia Pacific region already accounts for
almost 37 per cent of the global economy, measured on the basis of
purchasing power parity. Its contribution to global growth is even
greater: China alone supplied 17 per cent, more than the US, and
emerging Asia as a whole accounted for 40 per cent. 'The world economy
has now decoupled from its historic US economic leadership in
unprecedented ways. The global economic boom is not dead - its engines
have simply changed,' he says.

The Asian engines are certainly powering up: as any visitor to Beijing
can see, China has invested 300 billion yuan (£22bn) in the Olympics
alone; add in the huge spending on power stations, rail and road
infrastructure, water projects and the rest, and capital investment in
the next decade or so will run at hundreds of times that. That will be
financed by the huge trade and foreign exchange surpluses built up by
its role as supplier of the world's consumer staples.

These staples are increasingly going to its own population, however,
and those of neighbouring Asian economies as they start to benefit
from the growing wealth of their countries, and with 1.3 billion
people - around four times as many as in the US - that adds up to a
lot of demand. It also explains the optimism about the sustainability
of China's growth in the face of a US slowdown, albeit at a rate
perhaps slightly less rapid than the 11 per cent-plus seen over the
past few years. Indeed, the World Bank estimates that less than a
fifth of Chinese exports now go to the US.

Interest in Chinese and Asian funds has grown rapidly in recent years,
stimulating a wave of new launches, so there is plenty of choice for
those who want to invest. Marcel Porcheron at BestInvest picks the
First State Greater China fund, run by Martin Lau, which can also
invest in Taiwan and Hong Kong, or, for a broader regional exposure,
Aberdeen Asia Pacific, which is very conservatively run by veteran
manager Hugh Young.

But investors do not need to invest directly in China to get the
benefit of the China effect: a growing number of fund managers in
other regions are also finding ways to cash in on the growth.

China is one of the key themes underlying the strategy of Tom Ewing,
one of the band of young managers at Fidelity who has just taken over
its UK Growth fund. Using his powers to hold some foreign shares, he
has a direct investment in the country via China Mobile - which, he
points out, is adding 7,000 subscribers every month and, with
mobile-phone penetration still low, still has plenty of prospects for
growth. But he is also looking for companies in the UK that should
cash in on China's growth, ranging from those with strong
international brand portfolios such as Diageo - whose Johnnie Walker
whisky is popular in China - to the big mining groups such as Rio
Tinto and Xstrata, which are benefiting from its huge demand for
commodities.

Ewing's fund has beaten the FT All Share index handsomely over the
past three and six months, but his track record is too short to judge
whether his China bet will pay off; poor stock market performance over
that period means the fund has lost money despite that outperformance.
BestInvest's Porcheron says a growing number of other UK fund managers
are also looking for ways to cash in on China's growth - including
Richard Plackett, manager of the highly rated Blackrock UK Special
Situations fund. Those whose portfolio, or appetite for risk, is not
large enough to justify investing in a specialist China or Asia fund
should consider this, or the Fidelity fund, as an alternative.

An unexpected dividend: Eastern yields are rising

Managers investing in Asia have traditionally looked for growth rather
than income, but that is changing. Ayaz Ebrahim, chief executive of
Halbis, the active fund management specialist arm of HSBC in the Asia
Pacific region, points out that yields in the region have been rising
as Asian companies ditch their historical antipathy towards paying
dividends. Its research shows that 20 per cent of companies in 2007
were paying steadily rising dividends, compared with 15 per cent five
years ago, while a further 33 per cent delivered rising dividends with
some down years, compared with 23 per cent in 2002.

There are some excellent yields available: Halbis cites examples such
as Chunghwa Telecom in Taiwan, which yields 6.1 per cent, and
Singapore Airlines on 4.1 per cent. If the forecasters are right that
the global slowdown will not derail Asia's progress, that could make
their yields even more attractive. Fidelity points out that, while the
yields on many British companies look attractive - Alliance &
Leicester, for example, is on 10 per cent - that reflects investors'
fears that dividends will be cut. A number of companies have already
cut their payouts and investors are braced for worse, particularly
from the banks.

Fidelity's research shows that just 11 of the 26 companies in the FTSE
with yields between 4.5 and 10 per cent have earnings that are more
than twice their dividend payouts - a key measure of the risk or
otherwise of a dividend cut.

Buyers of income funds should therefore be aware of what their
managers are backing - the traditional heavy exposure to the banking
sector may not be good news. More adventurous income-seekers could
look overseas: Schroders, Henderson and Aberdeen are among those
offering attractive Asian income investment or unit trusts.

.

Relevant Pages

  • Re: CHINA: Long Term Growth Bright
    ... The sun's long term growth is bright also. ... Your investments China may not be fully 'decoupled' from the US yet, ... chief investment officer of private bank Bank ... First State Greater China fund, run by Martin Lau, which can also ...
    (soc.culture.china)
  • Slowdown for China?
    ... Slowdown for China? ... SHANGHAI China's economic growth is likely to slow modestly, ... investment and keep the economy on a healthy track. ... "GDP growth this year is forecast to rise 10.5 percent, ...
    (soc.culture.malaysia)
  • Global economy gravity shifts to Asia: official
    ... Global economy gravity shifts to Asia: ... Sept. 27 -- The centre of gravity for the global economy ... She said that Asia is a fast-growing region, led by China which, after two ... "We can expect China to sustain its strong growth, ...
    (soc.culture.malaysia)
  • China Could Be Dragged Down by Wall Street Crash
    ... China Could Be Dragged Down by Wall Street Crash: ... pollution, debt crises, war over Taiwan and a post- Olympics growth ... world's fourth-biggest economy. ... Growth in Asia will experience quite a setback if the U.S. ...
    (soc.culture.china)
  • Tapering China investments raise concerns
    ... Investment has fallen so sharply that China could suffer a serious ... Investment has been the main pillar of China?s double-digit growth over the past ... Mr Wang said this translated into an outright decline in new investment starts ...
    (soc.culture.malaysia)