Chinese stocks are red-hot--the MSCI China Index has soared 40.3% year-to-date through October. By comparison, the MSCI Euro Index is up a pedestrian 22.7%, while MSCI US Index has risen just 10.1%. Having gradually become the world's economic growth engine, China has a seemingly unquenchable thirst for global commodities and has transformed itself from a poor, sleepy rural nation into a powerful juggernaut. With annual GDP climbing a lofty 9%, China's growth is about triple that of the U.S.
While investing directly into the stock markets of mainland China remains a challenge for foreign investors, those seeking exposure to this burgeoning economy can purchase an array of mutual funds that buy stocks trading on the Hong Kong stock exchange--a highly liquid, well-regulated bourse comprising many Chinese companies. However, as an emerging market, investors should remember that China remains vulnerable to high volatility.
One of the best-performing China equity portfolios over the long haul, the $77.6-million AllianceBernstein Greater China '97 Fund (GCHAX), focuses on high-growth stocks, particularly in the technology and telecom sectors. Managers Vernon Yu and Manish Singhai define the "Greater China region" as encompassing Mainland China, Hong Kong and Taiwan. These three nations currently account for 17.56%, 56.83% and 20.92% of the fund's assets, respectively.
As of September 30, this fund comprised 52 stocks, with a heavy emphasis (44.7%) in the top ten holdings. China Mobile Ltd. (CHL), Shangdong Weigao Medical, Taiwan Semiconductor (TSM) and Petrochina Co. Ltd. (PTR) represented the portfolio's largest positions.
Another solid long-term China equity vehicle, the $163-million Columbia Greater China Fund (NGCAX), keeps its stock and sector selections fairly close to those of its benchmark, the MSCI China Index. China Mobile and Petrochina represent more than one-quarter of the portfolio's assets, similar to the Index. With financials, telecom and energy dominating the fund (about 66%), portfolio managers Fred Copper and Jasmine Huang keep a low annual turnover rate (about 24%).