Shanghai looks set to be a key area for investors in China now that the country has joined the World...
Shanghai looks set to be a key area for investors in China now that the country has joined the World Trade Organisation (WTO).
Robert Lloyd George, chief executive at Lloyd George Asset Management, says areas that already see large amounts of foreign direct investment (FDI) include the aviation industry, telecommunications and finance.
He believes Shanghai will become increasingly important in the development of the latter, having already developed a financial services infrastructure. As the economy develops, the country should see an influx of skilled expatriates that will assist in the development of the fledgling industry. Shanghai is expected to rival or even eclipse Hong Kong as a regional finance centre, says Lloyd George.
'The key to developing the economy will be allowing foreign banks to lend more to Chinese companies,' he adds. 'The market in China has developed tremendously in recent years and the country now looks set to become a major player in Asia. The market now resembles the Taipei market of a few years ago, with capitalisations worth $600bn and about 1,100 companies listed.'
Of these, only around 50 or so are of investment quality but the numbers look set to increase as the government gradually opens things up over the next 12 to 18 months, he adds. Many top Chinese companies, that want to access foreign capital, list on the Hong Kong stock exchange, where they make up nearly 50% of the index.
He says: 'Although exports have slowed slightly, domestic consumption has increased dramatically. We're very bullish on the energy and infrastructure sectors, as they need massive investment in order to allow to the country to develop rapidly.
'They are also the areas where the Chinese stand to benefit most from allowing foreign companies to enter the market. Private housing construction also looks very interesting as mortgage lending has gone through the roof.'
Constance Wong, senior investment manager of the Greater China fund at Lombard Odier, warns that many stocks now look fairly valued, however.
'While WTO membership is a good thing in the long run, a lot of restructuring is required to push the economy forward. This should take place over the next few years, but a lot of upside of membership seems to have been priced in already,' she says.
Despite these worries, she remains very upbeat about the country's long-term prospects and points to the tremendous growth in exports seen over recent years. Many manufacturing companies in the Far East have outsourced production to China because of its cheap labour costs, which has led to China becoming a central part of the global supply chain.
The primary theme that she will be following is the issuing of Chinese depository receipts (CDRs). These allow Chinese companies that are listed overseas to raise funds in mainland China rather than in Hong Kong, encouraging them to list in China.
Domestically listed companies tend to have higher market valuations than those listed overseas and this is where investors could see the biggest gains, says Wong.
WTO membership is a watershed.
Increased foreign investment to come.
Investment seen in energy and telecoms.
Chinese exports have slowed.
Benefits of WTO membership priced in.
Many Chinese firms list in Hong Kong.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress