Look before leaping into China

Dubai : I remember a marketing guru suggesting that staying way ahead of the competition was hard, staying slightly ahead, a bit easier: "By a yard it's hard, by an inch it's a cinch".

Staying ahead of the investment competition is exceptionally hard, but where you are overweight on the "inch", where the inch is, specifically, India and China, staying a bit ahead might seem more likely.

As a keen follower of UK stocks it was interesting to note Anthony Bolton's emigration from Fidelity's UK equity focus to China, because, according to Bolton: "China is the top opportunity for the next ten years." If the UK's closest answer to Warren Buffett is moving his desk East, surely all flavours of expats need to take note?

Having covered the Indian space recently, where do we go for a Chinese take-away? Enter Andrew Watson, representing M&G investments in the Gulf Region and beyond. Watson touts M&G's "Global Basics" as a China/Asian option. There are two stand-out reasons for giving it some consideration. Firstly, the fund is not so much a direct play on Chinese equities. Its an indirect play on companies selling into the China markets. This attraction has two sides to it: first, one of the well-expressed "risks" in investing into "red-hot" Chinese shares is the level of development of corporate governance in China. The fear lies in the apparent lack of development.

By investing indirectly into the things that the Chinese and other Asian consumers are likely to want to buy over the next few years, the fund acts as a proxy for investing into the whims and habits of the Chinese consumer. A consumer that is gradually building its spending power. For example, KFC, that famous Kentucky-based chicken store which now has more outlets in China than the US!

Consistency

The second attraction, lies in the fact that the Fund Manager, Graham French has been with the fund since inception. RMB Multi-managers, sell their multi-asset philosophy on a number of well-founded foundations, with one of them being that the average fund manager stays with a fund for three years. French's nine-year stint, in a nine-year-old fund, therefore makes him exceptionally "loyal".

Watson believes that French's loyalty and "undoubted professionalism" is a cornerstone of the funds 2009 rebound effect. Like most equity funds, Global Basics was hit hard on the 2008 results. However, loyal investors were rewarded with a reasonable 2009 recovery. Watson puts this down to French's philosophy, specifically in relation to three things, including, firstly, the importance of sticking to medium to long-term strategy. As they say on the sports field: "one bad result doesn't make your team a bad team".

The adverse effects of 2008 were felt globally, however, the reasons for selecting stocks in 2008 remain the same reasons in 2009. The fact that a good stock was a good, good stock in 2008 (despite the results) is the reason why the stock prices recovered in 2009. A probable lesson for UAE stockholders?

The second reason, Watson says, is down to French's willingness and commitment to meeting the corporate managers personally and "kicking those tyres". Finally, the age old adage of diversification. French summarises his style as follows: "I'm in the school of sticking to simplicity. M&G's fundamental research and straightforward, long-term approach has rewarded us over the past year. Investors are tired of "casino gambling" fund managers and they want to put their money with those they can trust to look after their financial interests over the long term."

As far as the fund is concerned, French adds: "I believe very strongly in the shift of economic power from the "West" to the "East". Companies that understand this shift and are positioning themselves accordingly, whether they are copper miners or toothpaste manufacturers, will be the winners over the next decade.

"I believe that well-managed ‘western' companies, which understand the dynamics of the emerging world, will enjoy tremendous rewards over the next five to ten years. This is a great way to gain exposure to the excitement of the emerging world through the relatively safe medium of well-run international businesses."

Five of the funds "household-name" selections provide testament to French's view: Colgate Palmolive, the oral care specialists who obviously realise that the Chinese will want to clear the KYC from their teeth; Unilever, the big name in tea and foods in the Middle East will also be the big name in those items in China if French's view is correct; Starbucks, United Technologies (with 70 per cent of all lifts in China) and the soap company Cussons.

As French concludes: "China is interesting but you have to be wary about investing in an area when everyone is talking about it — valuations can get swept up in the hype. I'm looking for companies which are unloved now which will see their true value emerge over five to ten years. I know I'm taking the right investment decisions when I feel sick as I'm making them because everyone else is doing the opposite."

The writer is chairman of Mondial Financial Partners International