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Triple Play on China

03/28/2003 12:00 am EST


Janet Brown

President, FundX Investment Group

NoLoad Fund*X, which consistently sports the top performing ranking among mutual fund newsletters, follows a system called upgrading, in which it shifts its holdings based on fund performance over the previous one, three, six, and 12 month periods.  Its current top rated funds invest in China.


“Two highly ranked Chinese funds are new to our list – Matthews China (MCHFX) and Investec China/Hong Kong (ICHKX). ‘China is a huge country with huge potential,’ says Investec’s Tim Guinness. Until recently, his fund had to keep 55% of assets in companies in Hong Kong, but this restriction is now lifted, allowing full exposure to mainland China stocks. The fund expects to reduce its Hong Kong holdings, and shift to China where it believes the best opportunities are.  Meanwhile, Matthews China is one of the oldest China funds, and the firm prides itself on being Asian specialists. Manager G. Paul Matthews has been investing in Asia for the last 20 years and he now believes China is the economic growth engine for all of Asia.”


Roger Conrad, among the leading authorities on utility companies, also sees opportunity in the China region.  In his latest The Utility Forecaster , the advisor says, “China’s robust economy and stock market stand in marked contrast to the rest of the world in 2003.  And with the country passing Japan in exports to the US, last year, it should just keep getting stronger. That spells explosive demand for electricity. CLP Holdings (CLPHY NASDAQ) is my favorite China power play for several reasons. First, it runs Hong Kong’s largest electric monopoly, with a guaranteed franchise through 2008. Regulators have set a guaranteed return of 13.5% to 15% on all equity investments, locking in annual cash flow growth of about 10% as utility capital spending continues to wind down. Meanwhile, CLP has used its cash hoard to hold debt to just 16% of equity, boost dividends, and expand its reach abroad, with a major focus on power plant projects in mainland China. Management plans several ventures including China’s biggest wind plant. If successful, the China ventures could easily double the firm’s overall growth in the coming years. And if not, the firm’s steady base and strong finances will keep it pumping out steady returns. CLP is a great aggressive total return play up to $5.”


Elliott Gue, editor of Wall Street Winners , remain bearish on the overall market, yet sees an opportunity in China.  CNOOC (CEO NYSE) has been our favorite long-term play on China. Indeed, today, it is one of the few real growth stories in the energy industry.  We believe 15% production growth per year is feasible, with superior operating and financial visibility. CNOOC is the only Chinese company allowed to conduct offshore drilling for gas and oil. It has a lean cost structure and is undertaking the largest offshore exploration project in China’s history.  It has the unconditional support of the government, and an array of good partnerships such as Royal Dutch Shell and BP. But the company itself is only half the story. The rest is the potential of the Chinese economy and the intense search for growth by the super oil companies. CNOOC is sitting in the middle of all of this.” 


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