China has become a favorite market for some international money managers.
Two firms - Matthews International Funds and Commercial Union Investment Management Ltd. - are launching China funds, believing the country's economic growth will stay strong and that there is high potential for profits.
And some managers, including Newport Pacific Management, and Foreign & Colonial Emerging Markets Ltd., are playing up Hong Kong/mainland China in their Asian portfolios.
Looking beyond the jitters about the People's Republic, these investors believe China's markets offer a comparatively safe harbor where economic growth should continue, albeit at a somewhat slower rate, and where renowned Hong Kong blue chips can now be bought for a song.
Even though China should lose some of its exporting competitiveness to nations where currencies have plunged, investors think some of the pain might be eased. They suggest, for example, that China might lower interest rates further, which should stimulate domestic demand sooner or later.
In contrast, this camp sees greater risks in other Asian markets, where bankruptcies and other shocks could follow currencies' plunges.
Such pro-China market sentiment is still bucking the trend, market data suggest. This year through Jan. 22, Hong Kong's Hang Seng index was down 17.15%. In contrast, South Korea's market was up 29%, Thailand's up almost 13% and Indonesia's stood 10.41% higher. During the same period, Singapore's was down about 17% and Malaysia's market was off 3.23%.
But market optimists are being spurred by favorable longer-range prospects for China, and the buying opportunities they now see.
"We are launching a China fund off the backs of our enthusiasm for China," said Mark Headley, managing director, Matthews International Funds, San Francisco. That fund was launched this month.
In Mr. Headley's view, the People's Republic has had "a decade of steady, forward progress reforming its economy. As long as it continues along that path, its economic growth will remain strong and the potential for profitability of its well-run companies will be high."
Moreover, London-based Commercial Union Investment Management Ltd. has launched a China investment fund, the China Index Fund Ltd. That Dublin-listed open-end fund tracks China B shares quoted on the Shanghai and Shenzhen stock exchanges.
In the first two weeks of January, the fund had raised $13 million, of which $10 million came from parent company Commercial Union PLC, London.
Newport Pacific Management, San Francisco, favors the China/ Hong Kong markets and has nearly 70% of its Asia ex-Japan portfolios invested in Hong Kong. (The firm plays China exclusively through the Hong Kong stock market except in its China fund.)
Investment strategist Michael Ellis believes China will be successful "reflating" its economy through domestic demand and, in the long term, it's "the biggest story in the region."
Within Asia, Sandy Nairn, global equity research director, Templeton Investment Management, Edinburgh, Scotland, believes China is the country with the largest supply of cheap stocks.
"People may have misunderstood what's happening in China," Mr. Nairn said. To him, it's a country emerging from recession that has many companies with "relatively stable balance sheets and stock valuations that are very low."
To Charles Brock, a director of Foreign & Colonial Emerging Markets Ltd., London, the markets of Hong Kong and mainland China are the "strongest and safest bets" in Asia right now.
The Hong Kong market already has discounted the worst of the property price declines, he said. Foreign & Colonial Emerging Markets has 50% of an Asian region portfolio in Hong Kong/China.
Others are not so sanguine on the mainland China/Hong Kong markets. Ray Dalio, president of Bridgewater Associates, Wilton, Conn., said, "relative to places like Indonesia and other countries of the region, China has become de facto twice as expensive. It's no longer as competitive with some other countries, which is creating a risk with the exchange rate."
Mr. Dalio suggests investors look elsewhere now. "The place to (invest now) is in countries where the currencies have been battered and (attractive) asset prices have been beaten down."
Among Asian emerging markets, Joshua Feuerman, managing director at State Street Global Advisors, Boston, favors Korea, Malaysia and Thailand. In such markets, stocks and currencies tumbled too far, he said, creating bargain-buying opportunities.
State Street has not recently viewed China/Hong Kong as a buying opportunity, Mr. Feuerman said, citing negative market sentiment and currency jitters.
Tim Sanderson, chief investment officer-equities of Delaware International Advisers, London, is among those who are "pretty cautious on all the Asian markets." Investors need to ferret out companies with little debt and clear strategies for coping with the economic morass, Mr. Sanderson said.
Most of Delaware's Asia holdings outside Japan that fit that description are in Hong Kong, Singapore and Malaysia.