As highlighted by Chancellor George Osborne's visit this week, Chinese economic growth offers tremendous opportunities for all types of businesses in the UK and globally. Yet like many other developing markets, China's own stock market struggled in 2011 falling by over 20%. For some areas it was even worse with small company indices more than 30% lower. Fears about a slowing economy were primarily to blame. China's economic growth slowed for the first three quarters of 2011 and the total growth rate for the year is likely to be just over 9%. Some forecasts see it dipping to nearer 8% in 2012, the weakest expansion in more than a decade.
This in itself wouldn't spell disaster. The Chinese government has targeted slower, more manageable annual growth of around 7% for the next five years. Yet managing a reduction in the pace of growth without putting the brakes on too hard is a tough challenge for Chinese authorities. There are already clear signs China's exports are slowing. The uncertainty created by the faltering US economy and European sovereign debt crisis could continue to adversely impact Chinese manufacturers exposed to those areas. It is doubtful whether domestic demand will take up the slack fast enough, especially now property prices are falling in some Chinese cities, potentially damaging consumer confidence and bank's balance sheets.
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However, Chinese companies are still growing their earnings strongly, and following 2011's market falls I believe shares are looking good value. It is impossible to rule out significant policy errors (or even civil unrest in what remains a totalitarian regime) disrupting economic growth and stock market returns. Yet at current levels I am optimistic. I believe the Chinese growth story has much further to run in the longer term, and should be characterised by a broadening of the economy, increased domestic consumption, social reform and, most importantly, a focus on sustainability.
It remains unclear what catalyst might be strong enough to counter the current mood of pessimism. So to help iron out the inevitable volatility in Chinese equities I'm adopting an approach of saving regularly into a China fund via my Vantage ISA. I have chosen Jupiter China managed by Philip Ehrmann. Exposure to higher risk smaller companies meant the fund struggled throughout 2011, but this underperformance could well reverse if the Chinese market rallies. It is also a constituent of our Wealth 150 list of favourite funds across the major sectors, though it should be borne in mind it is a higher risk, concentrated fund aimed at sophisticated investors.
If you are considering an investment please ensure you read the Jupiter China Fund Key Features which contain more information about the risks.
Jupiter China Fund
| Fund manager's initial charge | 5.25% |
|---|---|
| HL saving on initial charge | 5.00% |
| Net initial charge | 0.25% |
| Dealing charge | Free |
| Fund manager's annual charge | 1.50% |
| HL annual saving | 0.10%* |
| Platform fee | Free |
*Annual saving is not available in the SIPP or Junior ISA.
Find out more about this fund including how to investPlease read the key features in addition to the information above
