Time to incorporate China into your
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.
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.
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
in PPP terms, almost twice the
$7.3 trillion market exchange rate level.
While size clearly matters, there are several
additional trends that signal opportunity in
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
China poised to take the lead
in economic growth
In 2011, Chinaâ€™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.