China, now the world’s fourth-biggest economy and tipped to overtake the US by 2040, is “too big for investors to ignore”, says Matthew Richards
in the FT. Growth eased to an annual 10.4% in the third quarter, as the government clamped down on red-hot business investment, but a sharp slowdown is not forecast. Rising consumption – retail sales grew at their fastest in nearly two years in October – looks set to pick up the slack: the World Bank expects growth of around 9.6% in 2007. The Shanghai market is up 83% this year, while the China boom has sent the index of Hong Kong-listed Chinese firms to record highs.
The trouble for investors is that it is difficult to “scale the great market wall of China”. The Shanghai exchange is virtually inaccessible for private investors; foreigners have to buy a quota from the government to gain access. One China ETF is available in London: the FTSE/Xinhua China 25 (FXC), which tracks the top 25 Hong Kong-traded Chinese stocks; it is largely skewed towards domestic consumption plays. Among onshore funds, the First State Greater China Growth fund holds 47% of its assets in mainland Chinese shares, a third in Hong Kong and 20% in Taiwan.
It has gained 80% since launch in late 2003. The Templeton Global Emerging Markets fund, run by emerging markets expert Mark Mobius, is also worth a look, despite its global remit – 33% of its assets are currently in Greater China.
As for indirect plays, Richards highlights Germany’s Heidelberger Druck (HDD, e32 in Frankfurt), a printing press maker. Jonathan Schiessl of Ashburton says that because the firm supplies labels for food and drink containers, it is cashing in on the fact that consumers are switching to supermarkets from street markets. Another possibility is London-listed Monstermob Group (MOB, 37p), a mobile phone ringtone maker.
Is platinum set to get its own exchange traded fund (ETF)? Rumours to this effect saw the price hit a record $1,395 a troy ounce last month, before profit-taking pulled it back to $1,140. Barclays Global Investors is seen as the most likely candidate to launch a platinum ETF on the back of similar funds for gold and silver, but says it has no immediate plans to do so. As platinum is a small market compared with the other two precious metals, increased investor interest could soak up supplies and mean even greater price volatility.
“A platinum ETF could be difficult to establish owing to the lack of liquidity and likely resistance from producers and auto manufacturers,” says John Meyer of Numis Securities. The long-term supply/demand picture already looks tight. The car industry has increased its use in catalytic converters, as emissions standards become more rigorous – it will use around 4.38 million ounces this year, up 15% on 2005.
And from next month, US law will require converters on lorries; good news for platinum producer Johnson Matthey, says Robert Cole in The Times. But demand from jewellers is down 38.3% since 2002 to a 12-year low. Platinum is popular with Chinese brides, but high costs are raising demand for cheaper options like white gold.