How bold investors have made 40pc in a year betting on China

PRESIDENT Trump’s decision to withdraw from the Trans-Pacific Trade Partnership could be a welcome boon for investors in China, after years of caution on the region.

Savers have been wary about China since a crash in 2015 wiped 30pc off the stock market in just three weeks. A crackdown on gambling, a property bubble, and a rush of millions of inexperienced savers diving in and then back out of the stock market created shockwaves around the globe and left many investors nursing heavy losses. Today marks the start of a new year in China. Those who believe in it say the Year of the Rooster is oriented towards progress and integrity. And the stock market has been steadily rising for the past year. While the new President has pulled out of an international trade agreement to focus on one-on-one relationships, China has pushed ahead to propose a trade deal between south-east Asian countries.

But it’s a risky place to put your cash. Fears over investment in infrastructure, a property bubble and an economic slowdown mean savers should tread carefully.

Debt in China is rising – it is thought to have climbed from 160pc of GDP to more than 250pc of GDP since 2005. An ageing population means the workforce is shrinking, which places a greater burden on the state.

The property market is also a concern; over-investment in infrastructure which was meant to spur the economy on has led to ghost towns in rural locations and inflated prices in popular areas.

But there are reasons to be cheerful too. While the economy may be slowing, it still far outstrips the growth of anywhere in the West.

China has been focusing on shifting its economy away from being reliant on exports to being more domestically focused on consumption.

Net exports now account for only around 3.4pc of the economy, down from more than 60pc in 2008. Domestic consumption is now thought to account for 50pc of GDP. And while the workforce may be shrinking the population is becoming increasing wealthy.

Darius McDermott, director at Fund Calibre, says: ‘It’s easy to forget the sheer size of China’s population which, at around 1.4bn, is more than four times the size of the US. As its middle class expands, the potential for consumer spending growth is enormous.’

Areas such as healthcare, education, auto sales and entertainment are all starting to show signs of the transition to a consumer-led economy.

McDermott is also keeping an eye on the technology sector, where some companies are ‘much more advanced than their US counterparts’.

Experts say the key to investing in the region is being selective. In technology, for example, mobile internet grew 103pc in 2015 but laptop sales slumped 33pc.

Dale Nicholls, manager of the Fidelity China Special Situations fund, likes the autos sector. He says: ‘The Chinese car market is the largest in the world with almost 23m new passenger vehicles sold in the 12 months to September.

‘Yet only around one in ten people in China owns a car compared with eight in ten in the US, so the potential for growth is still considerable.’

One of the largest investments in his trust, which has returned 47pc over the past year, is car manufacturer Brilliance Auto. Nicholls also like e- commerce companies. Because China is so vast there tends to be fewer bricks and mortar stores so the growth of internet shopping has quickly surpassed the West.

He says: ‘I meet internet companies around the world and many Chinese firms stand out as being among some of the most innovative and best managed.’

He invests in online marketplace Alibaba and travel agency Ctrip. He also owns a stake in unlisted company Yiguo which is a fresh food e-commerce company, and the exclusive fresh food operator on Alibaba’s supermarket.

But corporate debt is still an issue at many businesses, and experts are particularly concerned about state-controlled banks.

The slowing economy is a worry too, in part because it is difficult to determine the actual rate at which it is growing because official figures may not always be accurate.

FORthose who do wish to take a punt in the region McDermott likes the First State Greater China Growth fund, which has recently reopened to new investors after it closed when it attracted too much money.

He says: ‘This has been a firm favourite of mine for a number of years. The team, which look for well managed businesses with good corporate governance, have shown it can consistently produce the goods in any type of economic environment.’

The fund, which has returned 40pc over the past year, only has 11pc of its money in China with greater amounts in Hong Kong and Taiwan. Largest investments include pharma firm Tong Ren Tang and natural gas business Towngas China.

He also likes the Invesco Perpetual Hong Kong & China fund, whose team meets around 1,000 different companies a year to decide which ones to invest in.

The fund, which insists every business it invests in pays a dividend, holds big tech firms including Alibaba and Tencent. It has returned 35pc over the past year.