China continues to provide a range of opportunities to investors but those hoping to make a qui...
China continues to provide a range of opportunities to investors but those hoping to make a quick buck should probably look elsewhere.
The country has been characterised as a wakening economic giant, providing a host of opportunities to investors, particularly in such industries as mobile telecoms and consumer goods where penetration is low and expected demand high. As yet, consumer spending remains way behind that of its more affluent neighbour, Japan.
Mark Mobius, manager of the Templeton China fund, says: 'China is the largest emerging economy in the world and it still has a long way to grow before it reaches anything like Western living standards. Domestic demand, which at present is still relatively limited when compared to China's GDP, should grow at a faster rate as the country becomes more affluent. It may not be a good market for investors who seek short-term returns but we are confident of its longer-term growth potential.'
Furthermore, the country's equity markets remain relatively illiquid and the choice of stocks available is limited, leading many fund managers to access China through Hong Kong and Taiwan listed stocks.
Even so, Mobius says a number of improvements have been made to China's financial markets since it joined the World Trade Organisation (WTO). In order to meet the WTO's requirements, restrictions on foreign investment in areas such as telecoms and insurance have been removed and Mobius says China is committed to carrying out further reforms such as the opening up of the more liquid Shanghai and Shenzhen markets to foreign investors. The lack of choice in stocks for foreign investors makes stock selection more difficult, particularly for any investor targeting shorter to medium term growth, Mobius notes.
'It is not easy to find bargains. It requires a lot of hard work and extensive research. Many people would like to invest in China, so word of any great ideas quickly gets round and is reflected in stock prices,' he says.
Richard Cardiff, Asian fund manager at JP Morgan Fleming, notes China's entry into the WTO has also accelerated export growth through the reduction of tariff rates on literally thousands of commodities. This has in turn led to Chinese products consistently gaining global market share since its membership was ratified and it is a trend that is expected to gather pace.
Cardiff says: 'The Chinese economy is growing at around 8.5% per annum, largely due to rising exports and increased foreign investment. Over the next 10 years, China is tipped to see even greater rates of growth as it continues to take an even larger share of world production.'
He adds China is no longer predominantly producing low value mass-produced goods, but rapidly increasing output of computers, electrical products and telecoms equipment. Moreover, his optimism is underpinned by the growing trend towards privatisation of successful areas of the market.
Mobius notes many of the more profitable exporters have typically been private partnerships of an entrepreneurial nature, but increasingly these companies are being listed, often through Hong Kong and Taiwanese shell companies.
China's long-term growth potential.
Market opening up to foreign investment.
Gain access via Hong Kong.
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