New China funds on the horizon

(August 12, 2004) The number of Canadian mutual funds dedicated to investing in China is about to rise. Both BMO and Manulife filed preliminary prospectuses for new China funds last month, says Morningstar Canada.

The BMO Greater China Class will invest primarily in equity securities listed on stock exchanges in China, Hong Kong or Taiwan, according to the prospectus.

Manulife’s Mix China Opportunities Class “seeks to provide long-term capital growth by investing in companies located anywhere in the world that are positioned to benefit from economic growth in China.”

The Manulife fund will invest in equity securities of companies based in China that are listed on the Hong Kong stock exchange and in equity securities of companies based in Hong Kong and Taiwan.

Morningstar notes that the current selection of Canadian mutual funds focused primarily on China is limited to half a dozen: AGF China Focus Class, Dynamic Greater China, Excel China, HSBC Chinese Equity, Talvest China Plus and Templeton China Tax Class.

Despite the excitement over China and its enormous potential, Morningstar senior analyst David O’Leary sounds a note of caution. He points out that at least one fund manager has suggested that investors should lower their expectations.

Bich Pham of Talvest China Plus predicts that emerging market countries like China and India will produce solid, but not spectacular returns. “Not this 40% or 50% or 60% that we experienced last year but probably in the area of 15% to 20% over the next 12 months,” he says.

In addition, O’Leary notes that those investing in China and India will encounter “significant risk and volatility. Allocating anywhere from 5% to 15% of your portfolio to either region or a combination of the two seems appropriate for the investor willing to stomach the ride.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com