Home' Trinidad and Tobago Guardian : January 31st 2016 Contents JANUARY 31 • 2016 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
OF MUTUAL INTEREST | SBG11
While the rest of the
world scrambles to
get out of the crum-
bling Chinese stock
market, a trickle of
investors is heading
straight into the wreckage.
Managers of Chinese stock mutual funds
have seen huge drops many times before, and
they even find things to like about them.
Instead of taking cover, and preserving cash
in their portfolios, this time these managers
say they are buying stocks of companies set
to take advantage of how the Chinese gov-
ernment is reshaping the economy.
This most-recent plummet has been even
swifter and sharper than past ones, but man-
agers of Chinese stock funds say it s also
brought down share prices enough that they ve
been buying companies that they thought
were too expensive just a few months ago.
"With a volatile market like China, buy it
when the world hates it and sell when no one s
worried," says Jim Oberweis, who runs the
Oberweis China Opportunities fund. "That s
worked pretty well over the last 20 years in
China, and now sure seems to me like a period
where everyone hates it."
Only time will tell if he and other Chinese
stock fund managers are right. They could
have made the same argument after each of
the Chinese market s many sell-offs the last
five years, and it wouldn t have netted them
much, if anything.
The MSCI China index has had seven
declines of at least 10 per cent over the last
five years, including the 19 per cent tumble
since late October, which itself followed a 34
per cent plunge from April into September by
just weeks. After all those ups and downs, the
MSCI China index has lost 12 per cent over
the last five years and is close to its lowest
level since the summer of 2009.
That s why fund managers say an investment
in Chinese stocks will require lots of patience,
maybe even a decade.
Oberweis fund, for example, has lost 15.9
per cent over the last year, even though it s
been one of the top performers in its category.
But over the past 10 years, it s returned an
annualised 8.9 per cent, better than the S&P
500 s 6.1 per cent annual return.
China s economy grew last year at its slowest
pace in a quarter century, and economists
expect it to slow even more this year. Part of
that is by design. The Chinese government is
steering the economy toward consumer spend-
ing and away from exports and investments
in infrastructure. It hopes that will yield a
more sustainable, though slower, rate of
The government is also pushing anti-cor-
ruption measures and efforts to make the
country s huge state-owned banks and telecom
communications companies more efficient.
The goal is to try to slow growth without
stopping it. The worry is that the government
will lose control of the slowdown, and the
economy will fall hard.
"It s painful at the moment, and there could
be some more pain to come," says Jasmine
Huang, manager of the Columbia Greater
China fund. "Eventually it will be good for
Huang is avoiding companies from what s
known as "Old China" and owns no raw-
material producers and few companies in the
industrial and energy sectors. But instead of
hiding out in cash, she has been investing in
"New China." She has been focusing on e-
commerce companies, where she expects rev-
enue to grow even if the overall economy
stumbles because more Chinese shoppers are
She also sees big growth for health care
companies. They make up only about two per
cent of the MSCI China index, and she says
they could grow to become the 10 or 20 per
cent of the market that health care represents
in developed markets.
Why this decline
Andrew Mattock, lead manager at the
Matthews China fund, understands if investors
are feeling gun-shy about Chinese stocks. "For
five years now, if you ve made money, it s been
hard to get, and you ve lost it quickly in these
sell-offs," he says.
But the most recent drops for Chinese stocks
have brought them close to their cheapest
level since the financial crisis, relative to their
earnings. The MSCI China index was recently
trading at about 8.5 times its expected earnings
per share over the next 12 months. That s
down from a price-earnings ratio of nearly 10
at the start of the year and approaching the
6.8 ratio of 2008.
Mattock, like Huang, has steered his fund
toward stocks that he sees profiting from
China s shift toward consumer spending. His
top holdings at the start of the year included
Tencent, which operates the popular WeChat
social media service, and JD.com, one of
China s largest e-commerce sites.
"This time, I think, is different because
there s actually change going on now," Mattock
says of the economic reforms underway in
China. "There are doubts about whether they
can do it, but what they re trying to do is pos-
itive." AP's Stan Choe
As the rest of the world dumps
Chinese stocks, some wade in
A man chats with
other investors near
an electronic board
prices at a
brokerage house in
January 19, 2016.
Chinese shares were
buoyed but the rest
of Asian stock
largely flat Tuesday
calming some of
the investor jitters
in the region. AP
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