Singer and Friedlander believe China is a safe haven for investments in the Far East. Howard Thoma...
Singer and Friedlander believe China is a safe haven for investments in the Far East.
Howard Thomas, head of the Asia desk at the group, says with a 7% growth in GDP year on year for third quarter in local currency terms, even accounting for unreliable Chinese statistics, the country is performing much better than others in the region.
David Gait, fund manager on the Asia team at First State Investments, cites this attractive growth as a reason why China represents the single biggest investment in the group's emerging markets fund. He sees potential for the country's economy to grow further, partly because of the government's policy of promoting investment away from the booming Eastern sea board.
Sectors relying on domestic consumption are the most likely to continue strong performance, says Thomas. He points to oil stocks such as Petro Chemical, Petro China and Sinopec, as continuing with relatively strong performance despite the recent fall in the price of crude.
Thomas believes the global slowdown can be beneficial for some companies in China. He gives the example of Tex Winca, a retailer and textile outsourcer.
'This company is benefiting from Western companies looking for cheaper production in the Far East,' he says. 'The dual nature of the company is also allowing it to benefit from strong domestic demand for its retail outlets.'
Gait also points to foreign direct investment as an important engine of growth. He cites China Resources Enterprise (CRE) as one holding company that is involved with joint ventures with overseas companies, with South African Breweries joining up with the organisation to expand its locally-branded brewing operation.
Gait says that CRE's brewing operation has outperformed the rest of the market by concentrating on lower end consumers and using cheaper, second-hand brewing equipment.
Others are less enthusiastic on the Chinese economy, however. Diamond Lee, investment manager of the Pacific Growth Fund at Britannic Asset Management, argues that although the fundamentals are in place, people are being over optimistic on the potential for specific stocks.
He says: 'Expectations are sky high and China commands a tremendous amount of good will. It will take a long time for some restructuring to take effect.'
While Lee agrees with Thomas that imminent entry into the World Trade Organisation will be beneficial for the country as a whole, he points out that it will hurt companies relying on market imperfections such as high tariffs, that will be swept away. He adds that the current domestic A share market is so heavily invested that many shares are trading at well over 50 times earnings. Any correction in the market could therefore have a serious impact on the wealth of many Chinese retail investors.
Thomas also sees problems inherent in the structure of China's economy. He says that there is a tendency in some companies to overproduce, citing the auto industry and white goods manufacturers as two examples.
He adds that the banking sector continues to need substantial restructuring and argues that China looks good as a 10 to 15-year investment.
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