De­spite China’s crum­bling stock­mar­ket, some in­vestors jump right in.

The Denver Post - - BUSINESS - By Stan Choe

While the rest of the world scram­bles to get out of the crum­bling 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. In­stead of tak­ing cover, and preserving cash in their port­fo­lios, this time th­ese man­agers are buy­ing stocks of com­pa­nies set to take ad­van­tage of how the govern­ment is re­shap­ing the econ­omy.

This most-re­cent plum­met has been even swifter and sharper than past ones, but man­agers 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.”

Only time will tell if he and other Chi­nese stock fund man­agers are right.

TheMSCI China in­dex has had seven de­clines of at least 10 per­cent over the last five years, in­clud­ing the 19 per­cent tum­ble since late Oc­to­ber, which it­self fol­lowed a 34 per­cent plunge from April into Septem­ber by just weeks. Af­ter all those ups and downs, the MSCI China in­dex has lost 12 per­cent over the last five years and is close to its low­est level since 2009.

That’s why fund man­agers say an in­vest­ment in Chi­nese stocks will re­quire lots of pa­tience, maybe even a decade.

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 spend­ing and away from ex­ports and in­vest­ments in in­fra­struc­ture. It hopes that will yield a more sus­tain­able, though slower, rate of growth.

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.

Huang is avoid­ing com­pa­nies from what’s known as “Old China” and owns no raw-ma­te­rial pro­duc­ers and few compa- nies in the in­dus­trial and en­ergy sec­tors.

She has been in­vest­ing in “New China,” fo­cused on e-com­merce com­pa­nies, where she ex­pects rev­enue to grow even if the over­all econ­omy stum­bles be­cause more Chi­nese shop­pers are go­ing on­line.

She also sees big growth for health care com­pa­nies. They make up only about 2 per­cent of the MSCI China in­dex, and she says they could grow to be­come the 10 or 20 per­cent of the mar­ket that health care rep­re­sents in de­vel­oped mar­kets.

An­drew Mat­tock, lead man­ager at the Matthews China fund, has steered his fund to­ward stocks that he sees prof­it­ing from China’s shift to­ward con­sumer spend­ing. His top hold­ings in­cluded Ten­cent, which op­er­ates the pop­u­larWeChat so­cial me­dia ser­vice, and JD.com, one of China’s largest e-com­merce sites.

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