Following the example of Marco Polo more than 700 years ago, some venturesome mutual fund investors these days are discovering the wonders of China.
It isn’t a simple proposition to buy and sell in the fledgling stock markets of Shanghai and Shenzhen--at least not yet. But the range of ways for investors to try to participate in the Chinese economy is increasing all the time.
The menu now includes several investment companies that are organized as closed-end funds, with a fixed number of shares that trade in the open market just like industrial stocks, and that concentrate on China and its environs.
The newest of these closed-end funds, the Templeton China World Fund, made its debut in mid-September.
At the same time, a growing number of open-end mutuals with global or Asia-only portfolios own China-related stocks.
Optimistic visions abound of the financial promise inherent in a huge communist nation that seems more and more to be embracing capitalistic ideas.
“China may be another ‘economic miracle’ about to happen,” says the Van Eck Asia Dynasty Fund of New York in a promotional brochure.
“With the government’s blessing, small businesses producing everything from bicycles to color TVs are sprouting up almost daily.
“A market with 1.2 billion consumers, a work force of 700 million, and billions of dollars of capital flooding in from around the world. . .There was such a feeling of excitement and energy throughout the country.”
Or in the words of the United Mutual Fund Selector advisory letter in Wellesley Hills, Mass.: “As the U.S. and much of Europe struggles with little or no economic growth, what nation is surging ahead to the tune of 12% growth expected this year? China!
“China’s economic growth could average 9 percent per annum through the year 2000 as the nation pursues market reforms. But that growth is by no means guaranteed, and the path may not be smooth.”
Indeed, nobody should even consider taking an investment flyer on China without studying the formidable list of hazards.
These include the standard international risks of currency fluctuations and volatile markets, plus, to quote Van Eck’s prospectus, “less publicly available information, and the possibility of expropriation, confiscatory taxation or political, economic and social instability.
“Since Asia Dynasty Fund invests a substantial portion of its assets in the Asia region,” the prospectus adds, “it will be particularly sensitive to changes in China’s economy as the result of reversal of economic destabilization, political unrest or changes in China’s trading status.”
Through the first half of this year, the Jardine Fleming China Region Fund, a closed-end fund whose shares trade on the New York Stock Exchange, posted a 12% increase in net asset value.
Its share price, which finished 1992 at $13.875, reached $19.125 by September, commanding a premium of more than 12% its net asset value.
“The China region markets have reached a critical juncture,” said the fund’s president, Martin Barrow, in its midyear report.
With all the progress that has been made, Barrow noted such persistent problems as rapid inflation in China and “roller-coaster sentiment” surrounding the uncertain future of Hong Kong, the freewheeling bastion of free enterprise that Britain will surrender to China in four years.
All this makes for what analysts appraise as an interesting, but fast-changing and unpredictable investment proposition.
Says the United advisory letter: “A handful of stocks of Chinese firms have already been listed on the New York Stock Exchange. As China ventures into a more open system, additional initial public offerings are likely both here and on the Hong Kong exchange.
“Still, the most logical place for individual investors to gain exposure to China is through mutual funds.
“The potential of a booming economy can make China an exciting place to invest,” United concludes. “But there is a great deal of risk. Factors such as political instability, currency risk and economic inequalities can lead toward high volatility in share prices.
“These investments are speculative, and should only be purchased by those able to tolerate sharp swings in net asset values.”