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China could be investment opportunity of a lifetime, says Skandia

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Over the longer term China could prove to be the investment opportunity of a lifetime for UK investors, according to Skandia Investment Group’s chief investment officer James Millard.

SIG, whose USD360m Skandia Greater China Equity Fund is managed by First State Investment Management (UK), expects China’s rapid growth over the last few decades to continue for the foreseeable future and for China to become a core holding for private investors over the next few decades.

The fund, which launched in May 1998, has returned 64.65 per cent over the past year.

Millard says: “Projections suggest that China will become the world’s largest economy over the next few decades, and may overtake Japan to become the world’s second largest this year. If this forecast turns out to be true, then it is likely that many of the world’s largest companies will be Chinese and that Chinese markets will dominate the investment landscape. By that point China will have ceased to be merely the preserve of risk seekers and will be a central part of all global equity portfolios.

“Optimism on China has increased over recent years because of a number of factors. First, China continued to grow throughout the economic and financial market crisis of the last few years, suggesting an underlying resilience. Second, many of the structural problems facing developed economies, such as rising public sector debt levels, are much less prevalent in China. Third, very low interest rates in the developed world could lead to increased appetite from global equity investors for riskier investments, such as Chinese equities.

“While many are optimistic on China, there are some who argue that China is in an investment-led bubble that will burst at some point. We remain positive on the outlook for China in the short, medium and long run and do not believe that China is yet in the sort of bubble that will eventually burst and lead to prolonged equity market weakness.

“The Chinese economy is likely to grow at a rapid rate over the next few years and beyond. This could lead to strong equity market performance relative to developed economy markets. While there are some signs of imbalances within the economy the policy responses from governments globally to the global economic and financial crisis, combined with the Chinese authorities’ efforts to encourage more growth from within, should lead to more balanced growth going forward. While Chinese equities are not cheap, China could be the ‘opportunity of a lifetime’, although ultimately only time will tell.”

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