product launch | first native china equity fund to be managed by shanghai-based chris ruffle and his team
Martin Currie is playing off the continued strength of the Chinese economy with the introduction of two new funds, one of which will be a world first.
The Martin Currie A-share fund, managed by Shanghai-based fund manager Chris Ruffle, will be the first international fund to invest directly into the burgeoning Chinese domestic stock market since the Chinese government decided to allow limited access to foreigners.
At the same time, the company is capitalising on its recent mandate win of the US-based China Inc fund by adding a mirror of it to its Luxembourg Sicav. The fund invests in China, Hong Kong and Taiwan.
Ruffle suspects that, at least for the A-share fund, his main investors will be fund managers and other institutions who want to access the fund research, rather than straight-forward growth investors.
This is because Ruffle will not generally invest in companies making up the largest sections of the stock market -' State-Owned Enterprises (SOEs). Instead he thinks the greatest value is to be added at the smaller level.
'In China, bigger is not necessarily better,' he said. 'And in fact there is often an inverse correlation between the two.'
Unlike the China Fund Inc, the A-share fund cannot invest in greater China, which includes Hong Kong and Taiwan, and this concentration means it will probably be a higher volatility proposition. The fact that the fund exists at all is due to the loosening up of the Chinese government view on foreign investment.
The company intends to get permission to obtain the necessary Qualified Foreign Investor (QFI) status as soon as it the company reaches the required size -' gaining $1bn of assets under management to reach the $10bn minimum.
There is an upside to having to use UBS, according to Ruffles. The QFI rules means once money goes into China, it cannot be removed for a year, and then only a fraction of the total sum every quarter. The new fund will have a minimum investment period of a year, but UBS will allow investors to redeem monthly.
China's previous attempt to get foreign investment through the B-share market, is described as a 'failed experiment' by Ruffle, as most B-shares are held by domestic investors with foreign exchange, not by foreign investors.
Ruffle is bullish on China, especially in the short term, where there is a quick gain to be made from currency revaluation.
'I think the Renminbi is seriously undervalued,' said Ruffle. 'My expectation is that it will be revalued next year. The currency is pegged to the US dollar at the moment. China's export industry is fearsomely competitive and this has been at a time when the dollar was relatively strong.'
The continual pressure on China to revalue the currency upwards comes mainly from Japan but also from the US. However, the US has not been keen to push the issue in the recent political climate. This could change now.
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