This Is Guernsey

By Tom Edwards

Jonathan Schiessl of Ashburton. 0530077)

A CHANNEL ISLANDS fund manager is taking a bullish approach to China.

Ashburton has in the last few weeks been increasing its presence in the 2008 Olympic Games host country.

Jonathan Schiessl, manager of the firm’s Chindia Equity and Asia Pacific Equity funds, said now was a good time to invest in China.

‘Of course the investment timescale is everything and while we can’t say with complete certainty that the lows are already in place for the Chinese markets, we do believe that we are there or thereabouts.’

The primary reason to invest is its falling inflation, unlike virtually every other emerging and developed economy, said Mr Schiessl.

‘With it now having been on a firm downward trajectory for the last three months – and estimated to fall to between four to five per cent by the year’s end –the government can start easing certain policy measures.

‘The falling commodity prices that we are currently seeing will certainly help. Rhetoric over the last few days has noticeably changed from a priority on inflationary concerns to a return to fostering economic growth.’

Mr Schiessl was not suggesting that interest rates would be slashed soon, but expected the government to boost domestic consumption due to the deteriorating economic backdrop.

‘We might well see the pace of renminbi appreciation slow or even see some depreciation against the US dollar,’ he said.

Ashburton’s positive stance towards China is due to negatives such as slowing international growth and worries about margin pressure and corporate profitability already being ‘in the price’.

‘The domestic A-share market is down well over 50% from its October highs. The Hong Kong China indices have fared little better. Individual stocks in many cases are down much further,’ said Mr Schiessl. ‘From a valuation perspective, the Chinese listed universe has gone from being overvalued to cheap, although not extremely cheap.’

Ashburton is focusing on consumer-and infrastructure-related sectors as well as ‘clean and green’ areas, where it has about a 15% weighting.

As part of China’s role as 2008 Olympic Games host and its vision of a new ‘harmonious society’, moves to clean up the perceived environmental mess of the last three decades are afoot.

‘We’ve seen talk of this for some time, but now legislation has teeth and more importantly bureaucrats at the local level will not gain promotion without meeting certain environmental targets,’ said Mr Schiessl.

‘The change is not a result of international pressure, but simply because the environmental impact on the Chinese population has become untenable.

‘China is changing. No longer is it the destination for low-cost production – government

policy is helping the country move up the value chain.

‘Low-cost producers are usually firms that are the worst environmental polluters, most energy intensive and have the worst record on labour treatment.’

Article posted on 6th August, 2008 - 2.30pm