Ehrmann has over 16 years’ experience of investing in emerging markets and works on a thematic basis. Selected stocks tend to be companies that will benefit from the identified themes.
The new unit trust will aim for growth by investing early in companies that have the potential to become the dominant players in their markets. This means Ehrmann will be investing mainly in small and medium-sized companies, rather than established giants. However, he will avoid the micro-cap end of the spectrum as these stocks are deemed too risky.
The portfolio will contain 40-50 stocks in his portfolios and stocks will be allowed to rise to a weighting of 3-4 per cent to allow some flexibility for profit taking if valuations start rising. Rather than investing directly in the Chinese stockmarket, Ehrmann will prefer to gain exposure through Hong Kong and Singapore, which have more mature corporate governance and accounting standards. The China theme may also be played through other markets such as the Nasdaq.
Cashflow will be the key to stock selection as it is the most visible way to measure growth in a region where accounting and reporting standards are not as developed as western markets.
Jupiter says that export driven growth has been staggering. China’s low-cost manufacturing base has meant Western companies have increasingly outsourced their production to China, leading to faster growth than western countries.
However, this fund was created not to jump on the bandwagon of what has already passed. Instead it is intended to tap into the next phase of development, which is focused on domestic growth through the rise of the Chinese consumer and the development of a Chinese middle class. It says the migration of hundreds of millions of people into cities has led to the creation of new service industries.
Recent news that North Korea carried out nuclear tests caused stocks to fall in Hong Kong and Singapore, but this ripple effect was felt around the world and its impact should be limited.