Stock up on China

Finweek English Edition - - COMPANIES & INVESTMENTS - Garth The­unis­sen gartht@fin­

Pre­scient In­vest­ment Man­age­ment is in the process of set­ting up a rand-de­nom­i­nated feeder fund for its Ire­land-reg­is­tered China Fund to give South African re­tail in­vestors the chance to ac­cess the stock mar­ket of the world’s sec­ond big­gest econ­omy.

Although China’s stock mar­ket has per­formed poorly in the last five years Pre­scient In­vest­ment Man­age­ment Port­fo­lio Man­ager, Liang Du, says Chi­nese eq­ui­ties are prob­a­bly among the cheap­est in the world, mean­ing now could be an op­por­tune time to in­vest. The Shang­hai Stock Ex­change Com­pos­ite In­dex has slumped 32% in the last five years, valu­ing it at about 9.5 times pro­jected 12-month year earn­ings com­pared to a seven-year av­er­age of 15.8 ac­cord­ing to data sup­plied by Bloomberg.

“The Chi­nese stock mar­ket has been do­ing hor­ri­bly for the last five years and is ba­si­cally the world’s worst per­former since 2007,” Du told Fin­week in an in­ter­view. “How­ever, that’s helped make it one of the cheap­est stock mar­kets in the world right now, which is ex­actly why we like it.”

Pre­scient has just been granted Fi­nan­cial Ser­vices Board ap­proval for the China feeder fund and Du says the as­set man­ager ex­pects to have it up and run­ning by the mid­dle of April. South African in­vestors will be able to ac­cess the fund through ei­ther a lump sum in rand equiv­a­lent to the min­i­mum once-off in­vest­ment of $1 000 re­quired by the dol­lar-de­nom­i­nated Ire­land-based fund. Al­ter­na­tively in­vestors can make a monthly in­vest­ment into the fund for an amount equal to $500. Should an in­vestor’s monthly con­tri­bu­tion fall short of the min­i­mum monthly in­stal­ment amount of $500, the feeder fund will sim­ply wait un­til the rand-de­nom­i­nated de­posits reach the $500 mark be­fore pur­chas­ing units in the par­ent fund.

Re­tail in­vestors want­ing to ac­cess the Chi­nese stock mar­ket via the feeder fund will need to hurry how­ever as Du says in­sti­tu­tional in­vestors have al­ready snapped up the lion’s share of Pre­scient’s $50m quota granted by the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion. Pre­scient is in talks with Chi­nese au­thor­i­ties to get ad­di­tional in­vest­ment quo­tas, which could see the fund ex­pand­ing in size over time.

The ben­e­fits of in­vest­ing in China are ob­vi­ous. Not only is China the world’s most pop­u­lous na­tion with 1.35bn peo­ple, it is also the fastest grow­ing of the world’s ten largest economies. Although China’s econ­omy ex­panded at just 7.8% last year, the slow­est in 13 years, its growth is still far out­pac­ing the likes of the US and the re­ces­sion-hit eu­ro­zone.

The OECD said on 22 March that China’s econ­omy was likely to grow by 8.5% in 2013 and 9.9% in 2014.

Liang Du

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