The Private Investor: 'Growth at home could be boring, so add a little oriental spice'

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The Independent Online

Don't buy before you have "kicked the tyres" is a sound investment maxim. It is one that I normally obey, even if only by shaking hands with the board at an AGM or touring the outlets. My problem right now is that 2004's excitements are forecast by the tipsters to take place in the East.

Don't buy before you have "kicked the tyres" is a sound investment maxim. It is one that I normally obey, even if only by shaking hands with the board at an AGM or touring the outlets. My problem right now is that 2004's excitements are forecast by the tipsters to take place in the East.

The numbers are so huge that every newspaper is running stories about Chinese booms and successes. Last year, the Chinese economy grew by 8 per cent, which is staggering, even after making allowances for some "rounding up" by Beijing's statisticians, and it will probably match that this year.

The Dutch are increasing the size of the huge Rotterdam port to cope with the rising volume of Chinese exports to Europe - clothes, electrical goods, you name it - and sending back rising tides of oil and coal. Foreign trade was up 40 per cent last year.

The Chinese are toughies. Despite some ungentle US threats, they are fearlessly refusing to unhitch their currency from the falling dollar. So the renminbi, which the rest of the world wants upvalued, is becoming cheaper and they stand to export even more.

As usual, there are siren voices warning of bubbles and crashes in booming banking, property and the consumer sectors. So far, the government seems to have it under control, and inflation is a mere 1 per cent a year.

Hugh Young, the Asia guru at Aberdeen Asset Management, is a regular visitor to Chinese shores. He reassures me that I am not being adventurous in looking to invest there. He expects earnings growth in China of 15 per cent this year, which would reduce the local earnings multiple from 14 to 12 times; about a third less than you can buy UK shares for. Hugo tells me Chinese companies do understand investors need to be kept happy. Anyway, he would not regard the market as expensive until the earnings multiple hits 20. He made it seem riskier to keep funds at home, where growth is expected to be boring.

All the big punters are piling in, apparently - $80bn (£43bn) has been invested during the past couple of years. So many new year tipsters had a China flavour that they read like takeaway menus. Even the conservative Anthony Bolton at Fidelity's Special Situations fund has as much as 2.4 per cent in the Asia-Pacific region.

One of the easiest ways to unlock the mysteries of the Orient is through UK quoted investment trusts that specialise in Asia. I can at least check out them and their strategies, and watch their prices in The Independent and elsewhere. Just to be on the safe side, I am looking at trusts with good, long-term records.

Fortunately, London still hosts relics of Britain's glorious past in the form of leading world commodity markets, whose dealers make excellent spies on what's happening out east. Their inside track has, for months, been telling of Chinese buying sending metal prices soaring. So, my first choice is Merrill Lynch World Mining - a long-term winner, with a 334 per cent rise in NAV during the past five years. Plunging directly in, others I like include Aberdeen Asian Small Companies and Scottish Oriental Smaller Companies. First State Asia-Pacific, a current favourite with advisers, is closing to new money next week.

The other way of getting in on the oriental story is by way of UK quoted beneficiaries of the eastern boom. They are a mixed bag. Some find market progress hobbled because they do their business in dollars. In the booming shipping freight market, Braemar Seascope's business of carrying coal and steel to China soared, but it reported first-half sales and pre-tax profits down nearly a tenth. All the same, Braemar and fellow broker Clarkson saw their share prices more than double last year.

Then there are the companies that sell China the raw materials it needs to fuel its increasingly hungry economy. A star beneficiary should be the London-listed Antofagasta, the giant Chilean copper producer. Others reporting Chinese demand include Xstrata, BHP Billiton, Rio Tinto and Lonmin.

Mind you, it's always possible that the Chinese locomotive might crash. If that starts looking likely, I'm looking to India.

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