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Ian Cowie: bored of Brexit, I’m topping up red-hot China

Ian Cowie: bored of Brexit, I’m topping up red-hot China

Never mind the Brexit tragi-comedy for a moment, the most important political event for investors this year will take place on the other side of the Atlantic, probably next month. Unfortunately, arranging a meeting between American president Donald Trump and Chinese president Xi Jinping is proving more difficult than getting two ageing pandas to mate.

But ending or escalating a trade war between both the biggest economies in the world will move global equities much more than whether Britain exits the European Union or not. Hopes that Trump and Xi would meet at the former’s Florida mansion this month were dashed last week but the author of ‘The Art of the Deal’ is keen to keep spirits up.

Trump told reporters: ‘We’ll have news on China, probably one way or the other we’re going to know over the next three to four weeks. Then, if a deal gets done, it will be something that people are going to be talking about for a long time. And now I think, China, frankly, they’ve been very responsible and very reasonable.’

This is encouraging talk for folk who understand why higher tariffs are bad for business. Trump’s emollient tone may also remind investors that he regards the Dow Jones index as a key criterion of his progress as president.

Whatever critics may say, Trump has been successful on that score. The Dow surged by more than 8,000 points or 40% in less than two years after his election in November, 2016, before trade war fears prompted share prices to plunge last October.

Since then, most of the lost altitude has been regained, pushing American share prices back into nose-bleed territory. For a more formal measure of valuation, the cyclically-adjusted price-earnings ratio (Cape), measures current share prices in relation to companies’ earnings over the last 10 years.

America’s Cape currently stands just below 30 or a fifth higher than its long-term average. By contrast, analysts at Star Capital reckon China’s Cape is nearer 16, which is ahead of emerging markets’ current Cape of 14 but well below their long-term average of 19.

Not all emerging markets are equal, as Datastream statistics demonstrate. Since the start of this year China’s Shanghai Composite index has increased by 21% and its Shenzhen Composite has soared by an eye-stretching 31%, compared to Brazil advancing 13%; Russia rising 12% and India edging 5% forward.

So China has been by far the best of the ‘BRICs’ to date in 2019 but investment trust share prices have yet to fully reflect that fact. As reported here before, I have been investing in China – on and off – for more than 20 years, having been lucky enough to visit Shanghai and Shenzhen back in the 1990s.

Originally a shareholder in Robert Fleming Chinese, then JPMorgan Chinese (JMC), before taking profits to buy a boat in 2009, I bought again with Fidelity China Special Situations (FCSS) in October last year, paying 188p and 216p per share.

By Monday of this week, the price had ticked up to 234p when I bought some more to bring the total exposure of my ‘forever fund’ in FCSS to just over 2%. The shares remain priced about 8% below net asset value (NAV) and yield 1.5%.

Other forever fund holdings with substantial exposure to China include Henderson Far East Income (HFEL), JPMorgan Global Emerging Markets Income (JEMI) and Schroder Oriental Income (SOI).

Interestingly, the Wall Street Journal reported on Tuesday that top American and Chinese negotiators will meet next week, when trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin fly to Beijing. Talks between the two nations are in the final stages, said WSJ sources, with a target date for a deal by the end of April. This follows visits President Xi is making to France, Italy and Monaco in the next few days.

Trump cannot afford another non-event, like his prematurely aborted summit with the North Korean leader, Kim Jong-un, last month. Equally, Xi does not want to fly halfway round the world and come back empty-handed.

So, somewhat bored by Brexit, I am betting that the self-styled master of the art of the deal will not disappoint. More specifically, I expect China will be the best of the BRICs this year and FCSS will provide professionally-managed exposure to this red-hot emerging market.

Full disclosure: here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.


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