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China fund smiles at WTO
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November 19, 1999: 6:50 p.m. ET
Manager upbeat on investing prospects in China following trade agreement
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Japan may be the hot Asia market for investors this year, but fund manager Adrian Fu has been watching China heat up for months.
Fu said his Guinness Flight Mainland China Fund rocketed up 15 percent in two weeks leading up to the historic accord that would allow the country to join the World Trade Organization. Even though the pact will open doors to unprecedented competition, Fu thinks the outlook is strong for 2000.
"The long-term potential (for China) is more convincing than ever," Fu said from his Hong Kong office this week. "Other markets in Asia may see some competition with China."
Also in this column:
A U.S. fund executive sees big opportunities in China for U.S. businesses.
Some Fidelity managers participate in an online chat.
As some focus on China, and Japan continues to lead the way, some winners and losers in mutual funds that invest in other parts of Asia.
The fund, though tiny with $13.1 million in assets, is up 29 percent year to date as of Thursday, Fu said.
The agreement would cut tariffs for international goods coming into China and carve out new access for everything from telecommunications to financial services. Other members of the WTO, including the European Union, must approve the agreement first. The U.S. Congress also will vote on the issue.
"China has been negotiating this for 13 years," Fu said. "It's a good development."
Fu said the market started correcting on Wednesday following the agreement. He expects more consolidation through November and a quiet December.
"The best time to buy a China fund is at the end of the consolidating mode," Fu said. "I would expect more money to flow in (to the fund) on renewed interest in China."
Fu doesn't believe a threat necessarily exists to China companies from the new competition.
For example, the fund's largest holding, Legend Computer, a PC manufacturer, controls the market for computers in China, even trouncing IBM. Because of Legend's distribution capabilities and knowledge of Chinese-language software, Fu doesn't see any change in its dominance.
Part of the agreement would allow international investment into Chinese Internet companies, which could be another boost to Legend as demand for Web access grows, Fu said.
Even though Chinese auto manufacturers may be affected when tariffs on imported cars drop from as much as 100 percent to 25 percent, Fu sees some good news. Another top holding, profitable Brilliance China Automotive, controls 85 percent of the minivan market.
Meanwhile, consumption in the world's most populous nation also is skyrocketing. Retail sales in September were at 6.2 percent, but by October the figure was at 8.2 percent. People in China want PCs, mobile phones, air conditioners, refrigerators and TVs.
"We should see more upside next year," Fu said.
China redux: While funds that invest in China are optimistic, U.S. fund managers are upbeat about the possibilities, too.
Charles Kadlec, managing director of J. & W. Seligman & Co., said companies like Boeing (BA) and Intel (INTC) will have many more opportunities to do business in China. Agriculture companies will also benefit.
"This takes a potential prosperity killer off the table," Kadlec said of the trade barriers. "It increases prosperity on the earth, and that will increase investment opportunities."
Online investors dialed up Fidelity Investments this week when three top fund managers spoke about the market and took questions from the public on a live "Webcast."
The session included discussion about the Fed's decision to raise interest rates, Y2K concerns and the technology sector.
Bettina Doulton, manager of Fidelity Equity-Income II and Fidelity Puritan Fund, said the most important news out of the rate hike on Tuesday was the neutral bias, a hint that another increase isn't imminent.
Andrew Kaplan, manager of the Fidelity Select Developing Communications Portfolio and Fidelity Select Technology Portfolio, praised Cisco Systems (CSCO) as he spoke about the explosive growth in tech stocks.
And Harry Lange, manager of Fidelity Capital Appreciation Fund and Fidelity Advisor Small Cap Fund, told viewers he thinks the economy remains strong.
Japan is still stealing the show this year with returns that are topping the lists of international funds. But here are some winners -- excluding those titans -- in funds that invest in other parts of Asia, according to Lipper Analytical Services.
At the top of the list is Van Kampen Asian Fund, class A shares, up 5.13 percent for the week Nov. 11 through Nov. 18 and up 59.72 percent year to date; followed by TCW Galileo Asia Pacific Fund, up 4.83 percent for the week and up 72.32 percent year to date; and Morgan Stanley Dean Witter Asia Equity Fund, class B shares, up 4.80 percent for the week and up 56.09 percent year to date.
The losers managed to avoid negative territory this week. The biggest loser is GMO Asia Fund, up 0.16 percent for the week and up 46.32 percent year to date; followed by Matthews International Fund, class I shares, up 0.25 percent for the week but up 93.38 percent year to date; and Capstone New Zealand Fund, up 0.31 percent for the week and up 6.92 percent year to date.
-- Staff writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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