A.T. Financial Newsletter
Time to incorporate China into your
fund strategy?
How to participate
For mutual fund investors who would like to gain or increase exposure to Chinese growth potential, there are several options:
  • Sector funds that focus solely on investment opportunities in China.
  • Funds that invest in non-Chinese companies (particularly those based in Hong Kong, Taiwan, and Japan) that are connected to China.
  • Canadian resource funds that invest in companies that export to China.
As with any investment, there are potential risks to investing in China.

Managing risk
Because of their narrow focus, sector funds as a group tend to be more volatile than more broadly diversified funds. In seeking specific funds for your portfolio, we will pay close attention to both your desire for growth and your tolerance for risk, in order to remain within your comfort zone.

1The World Bank, Purchasing Power Parities and Real Expenditures of World Economies, Summary of Results and Findings of the 2011 International Comparison Program.
2Reuters.com, "IMF cuts China's growth forecast but urges focus on reforms," June 5, 2014.
3 CTVnews.com, "UN lowers world economic growth forecasts amid cold winter, Ukraine crisis," May 21, 2014.
MUTUAL FUNDS
A recent upwards revision by the World Bank to China's gross domestic product (GDP) could see it ranked as the planet's biggest economy as early as next year. Investors seeking growth and international diversification may want to consider equity funds with exposure to this exciting emerging market.

The World Bank re-evaluated the GDP of major economies (as of 2011) in purchasing power parity (PPP) terms. Purchasing power parity values locally produced products and services (such as a Big Mac, a haircut, or a legal opinion) equally to similar purchases in other countries, even though they may be priced differently in local currency terms. This latest World Bank estimate values China's 2011 economic production at USD $13.5 trillion1 in PPP terms, almost twice the $7.3 trillion market exchange rate level.

Positive trends
While size clearly matters, there are several additional trends that signal opportunity in China.
China's growth rate, which the International Monetary Fund (IMF) expects to slow to 7% in 2015,2 remains vastly ahead of that of the rest of the world, which is projected by the United Nations to advance by just 3.2%.3

Furthermore, the Chinese Communist Party recently announced a relaxation in its one-child policy. This is potentially great news, as the "baby bust" the policy had produced has been slowing labour force growth for the past several years. If unchecked, it could lead to stagnation and even shrinkage in coming years.

China has also announced plans to reduce currency controls, in a bid to expand the yuan's usefulness as a reserve currency. Swap agreements have already been negotiated with Russia, Brazil, and several other Chinese trading partners. As a result, the yuan is beginning to edge out the U.S. dollar as the preferred medium of exchange in bilateral trading relationships.
China poised to take the lead
in economic growth
In 2011, China’s gross domestic product (GDP) was only slightly less than that of the U.S., based on purchasing power parity. The International Monetary Fund expects that China could take over the top spot as early as 2015.
* 2011 purchasing power parity, in U.S. dollars.
Source: The World Bank.
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