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Chindia Inc

It is difficult to pick up any global economic report nowadays without seeing India and China featured prominently.

While we have seen the launch of Bric funds we, perhaps surprisingly, have not seen anyone focus on the two Asian powerhouses in one fund.

Step forward Ashburton which has recently launched what it has decided to call a Chindia fund.

It is quite probable that many intermediaries will not have heard of Ashburton. It does not blazon its name over the trade or national papers. However, for many years it has been quietly managing a number of successful funds.

Jonathan Schiessl will be running this new fund. He has been at Ashburton for seven years and runs the Ashburton Asia Pacific fund (which includes Japan). Given that Ashburton are about as reclusive a fund group as you are likely to find, it is rather hard to label this as a piece of pure marketing, as some have described Bric funds.

Mr Schiessl believes that these are the two leading countries in the emerging market space, with broad economies and huge populations.

India arguably has the best demographics of any country in the world, with 50 per cent of the population under 25. Chinese demographics are not nearly so good but this provides an incentive for the government in China to bring the country’s economy fully into the 21st Century.

In one respect, the way to look at it is like the babyboomer generation in Europe, which led to a huge pick-up in GDP growth.

Chinese GDP, in particular, has been very stable and younger people have an opportunity to move out of poverty. For these reasons alone, the global economy is going to go through radical change over the next 20 years or so. It could be a new world order.

As these countries become more prosperous, they become genuine consumers. Some disposable income is available but, according to Ashburton’s figures, Chinese and Indian spending on such things as skincare, shampoo and deodorant is minuscule when compared with other emerging markets.

Why put these two countries together when there is nothing stopping investors buying separate Indian and Chinese funds?

From an asset-allocation point of view, the fund has some flexibility – it is not a straight 50-50 split and will fluctuate over time.

At present, the Chinese weighting is around 63 per cent. The two countries dovetail well together, with China’s manufacturing base complementing India’s service economy.

Interestingly, this is perhaps why India’s price/earnings ratios are so much higher – the companies are more growth-orientated. In addition, Mr Schiessl believes that by far the best management in Asia can be found in India.

I am glad to see that Ashburton’s process is not benchmark-orientated. This is because the benchmarks are dominated by a few large caps such as China Mobile, which is over 16 per cent of the MSCI China benchmark.

Maximum stock weightings in the fund are likely to be 5 per cent, with a portfolio of around 50 stocks. The fund can also access Hong Kong and Taiwanese stockmarkets and may hold 10 per cent outside the region in stocks that will benefit from the Chindia effect.

Research is done both externally and internally. A quant screening process, using Ibis data, looks at screens including momentum, PEG and earnings’ upgrades. Some of the team have in excess of 30 years experience, with many having track records of 15 years, so this is a team with depth.

Undoubtedly, China and India are a long-term story and there are sure to be setbacks along the way.

I would not consider investing for less than 10 years. For many clients who do not want lots of individual-country holdings this could be an ideal investment. In addition, given that this is a long-term secular change, I cannot help feeling that a regular savings plan via an Isa or Sipp could be ideal.


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