China does have challenges, but for long-term investors it is incredibly cheap versus its own history — it does not have to worry about the threat of inflation, and is expected to become the world’s largest economy by 2035.
Over the past decade, the country has also accounted for about one-third of global growth — a greater contribution than the US, Europe and Japan combined.
Yes, the growth of other countries in emerging markets is likely to dilute exposure to China to a degree, but it remains a country littered with great companies allowing active managers in Asia and emerging markets to take advantage in the long term.
Funds to consider
Ex-China portfolio – Jupiter Asian Income
Well-known Asian income manager Jason Pidcock combs the breadth of the Asia-Pacific market in search of large companies with reliable dividends that can deliver both income and growth for investors. The fund aims to capitalise on the opportunities of today, as well as the potential of tomorrow, and is not afraid to hold much more or less of certain countries than its benchmark in pursuit of this aim. Pidcock will predominantly focus on the more developed countries in the Asia-Pacific region, including Australia and New Zealand, which, together with the fund’s income mandate, make it a relatively defensive option in this region.
Active/Core Holding – Fidelity Asia Pacific Opportunities
Fidelity Asia Pacific Opportunities is managed by Anthony Srom. It is a concentrated portfolio of 25 to 35 stocks, with the sole focus of finding the best companies, rather than focusing on an industry or theme. Srom also aims to lower potential volatility by making sure the portfolio is diversified, while correlations of underlying stocks are monitored closely, with the fund performing well in down markets. Some 30 per cent of the portfolio currently sits in Chinese equities.
Dipping the toe in the water – GQG Partners Emerging Markets Equity
GQG Partners Emerging Markets Equity is a concentrated portfolio of high-quality companies with durable earnings. The emphasis is on future quality, rather than companies that have simply done well historically. The team has a strong investment resource, including investigative journalists and specialist accountants to give it an edge. The fund currently has a 16 per cent exposure to China (well below the MSCI EM Index) and has greater exposure to India (29 per cent) and Brazil (22 per cent).
Darius McDermott is managing director of Chelsea Financial Services and FundCalibre
