China in short-term bubble, but long-term growth

Michael Watt, manager of the Henderson TR Pacific investment trust, says that the Chinese market could be in bubble territory in the short term, but is still a fantastic growth story in the long term. Watt says there has been panic-buying of Chinese new issues, whereas investors are ignoring longer-established companies: “It is one of those rare occasions where people are queuing round the block in Hong Kong to get their hands on every new issue. Hong Kong is benefiting from that.” Watt says that while bird flu has impacted on markets, it is not a big threat to the region, which, he believes, is in a stronger position than during the Sars epidemic last year. He points to the stronger global economy, the growth trend in Asia and the election year in the US as positive factors. The trust substantially outperformed its benchmark for the year to December 31. Net asset value per share was up 40.4% at the year-end compared with a return of 30.4% from the benchmark MSCI All Countries Far East (Free) ex Japan index. The trust’s performance during the period was boosted by exposure to China and Thailand. Watt believes Thailand will continue to outperform this year as a result of strong profits growth and cheap valuations. The trust had gearing of 17.7% at the year-end and Watt is thinking of increasing this as the outlook for the market becomes clearer. He believes the outlook for 2004 is positive, but problems may lie in store after the US presidential elections, when America may be forced to adopt tighter economic policies.