02.27.2012

Trading China Eases

02.27.2012
Terry Flanagan

Macro volatility is to be feared only by short-term traders and investors, according to buy-side manager.

Despite recent market talk about the world’s second largest economy taking a macroeconomic dip, growth is still the name of the game for Agnes Deng, head of portfolio manager of Hong-Kong based Baring Asset Management’s closed-end fund, which manages the Greater China Fund (GCH). The fund currently manages roughly $300+ million and is agnostic on how to access the Chinese capital markets, but revels in the country’s development over the last 20 years.

“In the past 20 years, China evolved from a very emerging market to a more mature market; a lot of people will be able to get access to this capital market, compared to even five or ten years ago,” Deng, who has managed the fund since 2007, told Markets Media. “In terms of trading and transaction costs, the cost of investment is significantly lower. There’s improvement in corporate governance, and disclosure of numbers are more on par with the international GAAP (Generally Accepted Accounting Principles), which is making people more comfortable with investing in China.”

The GCH’s investors are primary institutional, and come from all corners of the globe as China manifests itself as global growth opportunity for both U.S. and non-U.S. pensions, endowments and foundations. Turnover for the portfolio is kept low with the mindset that “capturing China’s growth for long-term capital appreciation,” and subsequently, Deng is impartial to which instruments are used to access China. The fund currently invests in both companies that are based locally in China, as well as those that trade in related markets abroad, as long as they’re driving “China-based asset growth.”

As China becomes more visible on the international platform, the country, which was once shunned to foreign investors, has become more wrapped up in the macroeconomic headwinds of the global economy. While Deng’s investment process remains bottom-up, focusing on solid, underground companies that shined through market volatility, she admitted that a top-down view still remains important.

“Macroeconomic headwinds coming from the U.S. and Europe drives the risk premium of equities in China,” she said.

In recent years, the global capital markets have questioned China’s long-term sustainable growth. Deng dispels talk of either a soft or hard economic landing bringing a stop to China’s future prospects.

“The main message is that for about 20 years, Baring has been able to capture China’s growth and that we’ve been able to deliver performance for our investors,” Deng said. “The valuation of the market is cheap and the volatility is proving us a good opportunity for our investors, meanwhile sound due diligence, and transparency continues to be increased.”

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