Focus on China
24/01/2012
A debate seems to be emerging regarding the future growth prospects of China, after the country posted its slowest economic growth for two and a half years. China saw the economy grow 8.9% in the final quarter of 2011, better than analyst's expectations, but slower than at any point since mid-2009. In 2011, the Chinese stock market fell around 20%, on the back of continued concerns over inflation and sustainable growth. While the main investment banks expect growth to slow further, amongst the main emerging economies China still grew ahead of India (7.2%), Russia (3.9%) and Brazil (2.8%),
Despite the long-term arguments for investment into the Chinese market, Hugh Young of Aberdeen Asset Management Asia, manager of the St. James's Place Far East funds, told the Sunday Times, "I believe the impact of the eurozone crisis will have a severe effect on China, reducing its growth rate to around 7%, a rate last seen in 1999. This slowdown, a knock-on effect from the reduced demand from the West, is further encouragement for us to avoid adding to investment in China while the government struggles to replace the international demand for its exports. In addition, investments into Chinese firms are riskier than other emerging markets because of a lack of corporate governance. We find few mainland Chinese companies meeting our quality criteria, and have seen a spate of problems brought about from the relative lack of experience from senior management."
Overall, there can be no denying that China has been the phenomenal growth story of the 21st century, and investors who bought into the story early will have reaped handsome rewards. As the years have gone by, more investors have made significant returns, but it is important to recognise the increased risk involved. It is still possible to take advantage of Chinese/emerging market growth without incurring the direct risks involved in emerging markets, by investing in companies taking advantage of overall emerging market growth, which supply these countries with the goods and services they need for continued growth. This is exactly the investment strategy of Jonathan Asante of First State Investment Management, manager of the St. James's Place Global Emerging Market fund, whose fund only holds one direct Chinese stock. A diversified portfolio across geographical regions is essential to access this growth potential whilst helping manage risk.
