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Careful with the China

It is always refreshing to come across a fund manager who is up front with their views and is not afraid of upsetting the marketing folk on the floor below. A fund manager admitting that now is not a good time to buy their fund says more than one that proclaims that it is now a great opportunity to invest.

There are some notable examples of forthright honesty.

In 2005, Stephen Snowden suggested that people would be better off in cash rather than corporate bonds. He even told people why to invest. The Old Mutual corporate bond fund manager said the average corporate bond fund would struggle to beat the annual return on the ING savings account, then 5 per cent.

Paul Chesson, the Invesco Japan fund manager, is another who can be strikingly honest with his thoughts on the very country he invests in. He frequently airs his views to journalists and has been a prolonged bear on Japan for years, until recently, that is.

Late last year, I asked bond queen Theo Zemek whether an investor should buy her Axa fund. A resounding no came the reply because the fund she had inherited was full to the brim of poor, illiquid investments.

All of which is why the comments from Martin Lau struck a chord with me when I met him at his First State’s office last week.

China is firmly ensconced in our psyche as a portfolio must-have. It is easy to see why. The arguments in favour of emerging markets are compelling, particularly if you believe that China suffered nothing more than a temporary dip due to the global recession last year.

According to the latest World Energy Report, the emerging nations, notably China, are going to continue to support and drive energy prices for the next two decades. PricewaterhouseCoopers believes China should be able to sustain an average growth rate of around 6.8 per cent a year in real dollar terms between now and 2050.

Recent economic data supports the forecast that Chinese GDP growth will hit around 8 per cent this year. Certainly, the publication of China’s latest GDP figures (7.9 per cent compared with 6.1 a quarter earlier) suggests that it is back on track and its economy will thrive once more.

It has resulted in the highly regarded economist and Telegraph commentator Roger Bootle to claim that the most important investor decision is asset allocation and to identify companies which are going to benefit from a massively growing Asian market.

China shares have made some healthy gains this year and the rise of its stockmarket put it back in the spotlight but Lau is cautious and wary of the recent GDP figures.

He might be worth listening to if his track record is anything to by. His Greater China growth fund is a first-quartile performer over one, three and five years, having returned 161 per cent since launch in December 2003.

Naturally, he argues that China will prosper for investors over the long term and that there are some great opportunities to be had but he is honest in his view that now is not the time to invest in China.

Lau believes that China will not grow as quickly and so the returns seen in the past five years will not be repeated. He says that while valuations are not at the crazy levels seen in 2007, they are no longer cheap and suggests that investors give it another six months or wait until the market gives up much of 2009’s gains. Seems a reasonable piece of advice.

Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing

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