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Capitalism Comes To China

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Market participants may find some irony in the idea that as the capitalist West embarks on bailouts and nationalization, the still–officially–Communist nation of China is adopting more and more capitalist-style measures for its financial services sector–a move that some say is likely to be emulated throughout Asia in financial services and other sectors.

But Asia is no more immune to the financial flu affecting the United States and Europe than the United States and Europe were immune to the Asian contagion just over a decade ago.

“We foresee prospects of slower economic momentum ahead,” predicts Desmond Ch’ng, an Asian equity analyst for Standard & Poor’s. “Against the backdrop of slower global economic growth, China’s economy has also entered a cooling-off phase and we forecast a moderation in GDP [gross domestic product] growth to 9.6% for 2008 and 8.8% in 2009, from 11.9% in 2007.”

Unlike many other categories, where a top-performing fund for the one-year period often also shows up on the list of top-performing funds for three years and five years, there are only two funds that show up more than once on the accompanying tables: Matthews China and Columbia Greater China, both of which are top performers for the three- and five-year periods. However, this year through August, Matthews China is sitting on a loss of 26.7%.

“The fund seeks to invest where we identify new markets emerging,” explains Richard Gao, portfolio manager. “With the ongoing rise of China’s middle class, many of these markets tend to be in the consumer and financial sectors. What we have seen and heard during recent visits to China have reaffirmed our view that rapid income growth has been generating increasing consumer demands, and the momentum does not appear to be slowing. We also see banks and insurance companies continuing to improve efficiencies and expand into new business areas. We, therefore, continue to have overweight positions in these areas. However, the fund saw heavy selling pressure on most sectors in which it is invested.”


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