Anthony Bolton's epic move east to manage a new investment trust focused on China has prompted much excitement and even more pontification. Much of the debate has centred on whether China is destined to become the great economic superpower – or whether China is, in fact, only two steps away from political collapse (the argument advanced by George Friedman in his wonderful US bestseller The Next 100 Years).
I'm not going to bore you with my bearish views on the subject. Instead, I'd simply repeat the observations of independent economist Andrew Smithers. In his latest paper, he noted: “It is often assumed, or implied in circulars from investment banks and in articles in the financial press, that equity returns in rapidly growing economies should be higher than those in mature economies. Investors are therefore often encouraged to overweight their portfolios to favour shareholding in emerging markets. This is without theoretical justification, which points to expected returns in all stock markets being the same.” Notwithstanding Smithers' admirable fidelity to the facts, I would argue that there is a case for buying exposure to a big story such as China. However, the fund you buy into has to have a better rationale than “buy me because I buy Chinese shares”.
If I was forced to summarise my position, I'd accept the need to buy some exposure to China (albeit less than most would maintain) but only when prices were much, much cheaper. If prices were cheaper now – and sadly, they have been heading in the opposite direction – I'd perhaps be happy to buy a successful, mainstream fund such as JP Morgan's China investment trust. Or if I were being more adventurous, I'd look at buying into something trading at a chunky discount to net asset value (NAV), to give a margin of safety, or some special focus that offers a degree of protection. London-listed Vision Opportunity China (ticker: VOC) potentially offers both.