Publication: The Business Times, p 11 Date: 21 November 2011 Headline: Investing in China not quite for the beginner

Investing quite for the et = - ~ n e r u- b =I

It doesn't make sense to go abroad for the sake of doing so, says an SMU professor. MINDY TAN reports IIINA is once again emerging as a hot favourite for institu- tional investors. according to the latost Hank of America Merrill I-ynch's survey of fund managers.

In fact, a whopping 69 per cent of fund managers raised

their allocation to China - the hkhest level since May 2009. Correspondingly. 27 per cent of respondents said that they put proportional- ly more of their funds in emerging markets this month, compared with only 9 per cent in October.

One of the main reasons behind this lies in the increased belief in China's resilience, said the study. which surveyed 258 fund mana- gers managing about US$665 billion worth of assets, and found that more than three quar- ters of respondents expect a soft landing for China in 2012, with the Chinese delivering better than 7 per cent growth.

How can young investors benefit from this? Is now a good time for young investors to consider investing in China?

Market nuances According to Ang Ser-Keng, senior lecturer of finance at the Lee Kong Chian School of Busi- ness, Singapore Management University, it is important to first understand the macro-eco- nomic environment and the nuances of the Chinese market. "For example, given that the Chinese market is highly export-oriented, how would the protectionist attitude of for- eign governments, as well a s the current tough global economic conditions affect the Chinese economy in the short, medium, and long term?"

In addition, the yuan is likely to appreci- ate, making Chinese exports more expensive, hence affecting the competitiveness of Chi- nese products, he says.

"Additionally, one needs to understand how effective Chinese regulators are in regu- lating the market that would avert protracted economic weakness in the Chinese economy."

Investors also need to conduct research in- to micro-level issues, adds Yrof Ang. For in- stance, how well is the industry in which an investor wishes to gain exposure in doing glo- bally? How is the company doing in the con- text of the global industry in which it com- petes? What is the company's market posi- tion'? Is it a market leader or'a small player'! Who are its majority shareholders?

After tackling these issues, investors can consider the different asset classes available.

Investors should also weigh the pros and cons of choosing a fund that focuses on a spe- cific market, versus one that focuses on a vari- ety of markets.

A fund which focuses on a variety of mar- kets, for instance, may be more suitable for young investors hoping to gain the benefits of diversification; on the other hand, choosing funds which focus on specific markets will al-

note that Chinese stocks are not readily availa- ble to foreign investors.

A company's A-shares are available only to domestic investors, whereas B-shares are available to foreign investors; B-stocks are traded in USD on the Shanghai Stock Ex- change and in HKD on the Shenzhen Stock Ex-

However, he adds, a challenge faced by in- vestors here is that some S-chips are relative- ly small companies that are unknown to inves- tors in Singapore, and thus, access to inbrma- tion may be limited.

This problem is augmented by the fact that multi-billion dollar Chinese companies prefer to list on the Hong Kong stock exchange, by virtue of its close proximity, he adds. change.

While recent deregulation has made invest- ment in the A-share market accessible to qual- ified, institutional investors, it is still only ac- cessible to large institutional investors, notes Prof Ang.

And, since B-shares are traded in curren- cies that art: likely to depreciate against the yuan, investors need to take into account that their potential forex loss would affect their re- turns nn their investment, he warns

Funds approach lows investors to decide on how much empha- sis he/she wishes to place on each market, al- beit at the risk of increased transaction costs.

Prof Ang says that before investors jump on the bandwagon, they should consider the "risk-return trade-off". In othcr words, is there an alternative in the local market which is more familiar to the investor, and thus sa- fer vis-a-vis the number of unknown factors prcstlnt in a markct such as China')

"1)epending on the objectives for invest- ment and the state of the Singapore market, there are ample opportunities to invest in very high quality Singapore companies that have a very long and successful track record," Prof Ang says. "I do not think it makes sense to go abroad for the sake of doing so, especial- ly for those new to investing."

Perhaps the safer way to gain exposure would be via funds. says Prof Ang.

Besides gaining the obvious advantage of diversification. investors benefit from fund managers' expertise or understanding of the macro and micro factors involved. In addi- tion, bigger funds would have access to re- strict~d markets such as the A-share market, which is not directly opttn to rchtall invc!stors. he notes.

That being said, investors should not dive blindly into funds and instead choose a fund manager of reputation, and be mindful of the fees the fund manager charges. In addition. in- vestors need to be aware of the size of the fund as it d e c t s the liquidity, and the indus- try in which the fund is investing.

S-chip option S-chips, or Chinese companies listed on the Singapore Exchange, could be a viable alter- native. "Most, if not all, counters listed in Sin- gapore are listed in SGD, hence there is no di- rect exposure to FX risks." points out Prof Ang.

China exposure For investors who are interested to gain expo- sure to China via stocks, it is first important to

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