03.09.2012

Ian Lancaster

Portfolio Manager

Reliance Asset Management (Malaysia) Snd. Bdh.

In recent years China has staked its claim as a world economic superpower. Its economy has continued to power ahead while many other developed nations are still dealing with the aftermath of the economic crisis. Rising living standards and purchasing power and a growing middle class are just some of the driving forces behind its amazing economic growth story. The WIOF China Performance Fund allows investors to be part of that story, offering investment opportunities in the world’s second largest economy.

PHENOMENAL GROWTH

China’s economy has grown phenomenally since it was reformed and opened up more than two decades ago. The last 20 years have seen the creation of a modern, market-based economy whose growth has continuously outpaced the world’s major economies. While China is currently the world’s second largest economy, the World Bank has said it may overtake the United States as the world’s largest by 2030. Chinese GDP is expected to grow by 8.3% in 2012 – far more than US GDP, which should expand by 2.2% this year, and the Eurozone’s predicted contraction of 0.5%. Urbanisation on a massive scale and the foundation of ever-expanding giant metropolises around the country has promoted growth across all sectors. At the same time, hundreds of thousands of domestic firms have sprung up, from SMEs (Small and Medium-Sized Enterprises) to large corporations, and China has become one of the most competitive business environments in the world.

 

One of the key drivers of the economy has been the rise and continuing expansion of a massive middle class consumer base. This is driving the retail and other sectors as wealth is created and disposable income and consumption rises. This in turn is fostering the development of a sophisticated consumer economy with opportunities not just for domestic concerns but for global firms as well. For example, the telecoms sector has great growth potential - sharply rising numbers of 3G users are boosting data traffic and application usage. And the middle class is set to get much, much bigger. According to predictions from the UN, China’s middle class will be four times the size of America’s within the next two decades, with as many as 1.4 billion middle class consumers by 2030.

 

LOCAL MARKET ATTRACTION

The Chinese demand for raw materials to fuel its rapid growth has been well documented. Chinese companies have invested heavily in and established strong economic ties with resource-rich regions of the world such as Africa, Latin America and Russia. But the Chinese market has also become one of the most attractive for leading firms from the developed world. From the outset of its economic reforms, China opened its economy to foreign companies and it is now one of the most important markets for a number of the world’s biggest concerns. The economic transformation in China has also included the founding of equity markets which have proved to be not just another key driver of the economy but are also fast becoming a crucial source of finance for domestic SMEs. Firms of all sizes and from all sectors are listing their shares on the Shenzhen and Shanghai stock exchanges. The number of listings is rising each year and special boards on each bourse have been established to help cater for smaller and innovative firms’ needs to raise finance. Today, China has more than 3,000 companies listed and a total capitalisation of more than USD4tn. The Shanghai stock exchange is one of the largest in the world.

OUTLOOK

But despite all the positives in China’s growth story, questions have been raised over the health of the economy recently with some predictions of a ‘hard landing’ ahead as economic growth slows. However the nature of China’s political and economic system means that the government has sufficient ammunition at its disposal to combat any imbalances in the economy and engineer growth. Indeed, Premier Wen Jiabao has already publicly stated the government’s commitment to ensuring a stable and healthy economy. And in one recent move underlining the importance authorities place on capital markets, both the Shanghai and Shenzhen bourses slashed trading fees in a bid to attract investors while market regulators announced plans for tougher rules under which underperforming companies will be delisted from both exchanges.

 

INVESTMENT ADVISOR

The Fund also offers the management skills of one of Asia’s largest asset management companies, Reliance Asset Management (Malaysia) Sdn. Bhd. (RAMMy). RAMMy is a subsidiary of Reliance Capital Asset Management Limited (RCAM) India, one of the two largest asset management companies in India by assets. Reliance Asset Management Malaysia has developed a unique capability of managing equities through a systematic approach to investment management which rigorously implements stock selection based on clearly quantifiable criteria, thereby helping minimise the possibility of subjective judgments negatively influencing the investment decision making process.

 

IMPORTANT NOTE: This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. 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. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.