Six ways to cash in on the China growth story
Few investment themes make mouths water like China. Growth has taken off over the past two decades, reaching a world-beating annual pace of 11.3% in the second quarter amid robust exports, massive investment in infrastructure and rising consumption.
The Shanghai Composite Index has reached a five-year high, having badly lagged the index of Chinese companies traded in Hong Kong for the past few years.
And China fever went up another notch this week as institutional orders for the flotation of the Industrial and Commercial Bank of China (601398) hit an IPO record.
The economy looks set to keep buzzing for now. The former chief executive of Canada’s aluminium giant Alcan, Dick Evans, says “we don’t see a slowdown” in China’s metals consumption; indeed, it has exceeded forecasts recently.
China is “politically geared” to making a success of the 2008 Beijing Olympics, which is spurring construction and spending. Meanwhile, with exports to the US comprising 8% of GDP, China would be affected by a US slowdown, but there is plenty of scope for the government to combat it by upping spending or cutting interest rates. This could “fully offset” the impact of a US slowdown, reckons HSBC.
One way in is via the FTSE/Xinhua China 25 (LSE:FXC), an exchange traded fund that tracks the 25 biggest Chinese firms traded in Hong Kong, where governance standards are higher than on the Chinese mainland markets. They are mainly geared to domestic consumption, making them less sensitive to a US downturn, notes Martin Spring in his On Target newsletter.
The Investors Chronicle highlights some intriguing Aim-listed Chinese companies, including Asian Citrus (ACHL), China’s largest orange grower, which is likely to boost the percentage of fruit sold to supermarkets from 6% to 50% over the next three years.
Enterprise Asia, an investor in waste incineration plants, also looks promising over the next few years, as do Griffin Mining (GFM), Hutchinson China Meditech (HCM), and EuropeAsia, which invests in Chinese education businesses.
