Portfolio Manager

James Liu, CFA, Deputy CIO,

APS Asset Management Singapore


When one talks about investing in China, one normally thinks of a large closed community which few have deep insight into. However WIOF has launched a fund which moves investment into China. The WIOF China Performance Fund enables you to participate in equity markets on the Chinese mainland. These markets provide extended investment opportunities in China and help diversify ones portfolio. Chinese markets driven by their industrial strength are going through a period of strong economic growth which automatically reflects into capital market growth. Due to growth in domestic demand, the Chinese economy is leading the way in world economic recovery.


Main growth drivers remain stable

All economic data to date indicate that growth in China has been sustained.

-          Industrial production rose 13.1% y-o-y in October 2010.

-          Fixed-asset investment growth improved to 23.6% y-o-y.

-          New loan growth was at Rmb587.7 bn, above market consensus.

-          Nominal retail sales growth has improved to 18.6% y-o-y in October, dipping mildly from 18.8% y-o-y in the prior month.

-          Stripped of inflation, the real growth rate may have stayed around 15% y-o-y.

-          Retail demand is expected to stay solid, supported by a rise in consumer activities in tier 3 and tier 4 cities and rural regions.

-          The official manufacturing PMI headline index rose to 54.7 in October, from 53.8 in September.

-          Exports grew 22.9% y-o-y in October while imports rose 25.3% y-o-y.


Construction and housing sector

The construction sector has also held up. Following the additional property tightening measures at the end of September 2010 and widespread media reports of collapsing sales in large cities, October sales in 70 large cities actually grew by 16% y-o-y. It seems that sales outside of the tier one cities have been scarcely affected. On the back of strong sales, property prices continued to edge up, with average sales prices in 70 large cities increased 0.2% m-o-m, while the y-o-y price growth dropped to 8.6% in October from 9.1% in September. Consequently, housing starts and real estate investment are growing strongly. Housing starts were up 51% y-o-y, compared with 44% in September. Real estate investment grew by 37% y-o-y, consistent with strong starts and construction numbers.


Interest rates and excess liquidity

Despite the Central Bank increasing interest rates, there would likely to be little near-term impact on the domestic equity market. It should be noted that during 2007, when interest rates were increased seven times (from 6.12% to 7.47%) and the required reserve ratio was increased 10 times (from 9.5% to 14.5%), the Shanghai composite index continued to rise from 2,800 to 5,300. So it is likely that the government will continue to use multiple layers of defence to manage excess liquidity and prevent excessive credit expansion.

Monthly and quarterly lending quota will be imposed to keep credit expansion in check; and lending to certain sectors may be discouraged to limit the build-up of excess capacity. Given that there are already extensive capital controls, the chance of a further tightening of controls is relatively small but the government could introduce a relaxation of controls on outflows.


Inflation and prices

The government will rely heavily on administrative measures to keep consumer prices and property prices relatively stable. Details of the CPI breakdown below show that food inflation remains the main driver. Food accounted for 75.3% of the 4.4% points increase in September 2010.

With property activity remaining resilient and prices continuing to rise, it is likely that the government will continue to keep a tightening bias on this sector. In addition to continued sterilization (including further RRR hikes) and rate hikes, it is likely that the government could:

(i)                   set a tighter lending target for 2011, at about 6-7 trillion RMB and

(ii)                 allow for a faster RMB appreciation to help combat imported inflation. Both the rate hikes and the RMB appreciation may need the help of strengthened capital controls to fend off the unwanted capital inflows in the aftermath of QE2.


Equity fund WIOF China Performance Fund = Opportunity beckons

The fund investment manager is the investment company APS Asset Management which is an independent, employee-owned fund management company based in Singapore and was established in 1995. APS is a pure bottom-up Asian equity manager with investment staff in Singapore, Shanghai, Shenzhen, Beijing and Tokyo. Management of this fund is delegated to James Liu who is Deputy Chairman and Deputy CIO of Singapore based APS AM. He has about 20 years' experience and is the final decision maker. The APS China investment team comprises 13 investment professionals, including Deputy Chairman and Deputy CIO, James Liu, one chief strategist, Prof. Tan Kong Yam, a senior portfolio manager andten analysts. The team has a top quartile track record on a similar investment scheme namely APS China A Share Fund in comparison to the WIOF China Performance Fund. Risk controls are broad and the portfolio is concentrated into 20-25 stocks.

Importantly Standard & Poor´s has rated the fund as "A". This rating is valid until November 2010 however S&P is momentarily reviewing the rating for next year and it looks that it would again be rated positively.

Exposure to the Chinese stock markets belongs to each globally diversified investment portfolio. Should the investment risk be sufficiently spread, the WIOF China Performance Fund should not be missing from a client’s investment portfolio. Using the WIOF China Performance Fund, you can significantly increase your portfolio performance.


Legal Notice : This document is designed for the professional advisers only. This document is not an invitation to subscribe for units or shares in the funds described herein and is by way of information only. Past performance is not a guide to the future. The value of investments, and the income from them, can go down as well as up. You may not get back the amount you have invested. You should be aware that currency fluctuations, either up or down, may also affect the value of an investment. The mention of any specific shares should not be taken as a recommendation to deal. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Yields are not guaranteed and can fluctuate. Net asset value information has been obtained from sources believed to be reliable but WIOF makes no representation to its accuracy, reliability or completeness and accepts no liability for any direct or indirect loss arising from its use. WIOF and Cornhill Management International S.A. assume no liability for the correctness or accuracy of the given information and it may be subject to change at any time, without notice. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser and refer to all relevant documents relating to the particular Sub-fund(s), such as the latest annual or semi-annual report and/or simplified prospectus, which specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing.