Year of the pig 'set to be volatile'

David Field

The Chinese New Year is "set to be volatile for China investors", according to a study by Fidelity International. China has long been seen as one of the booming economic centres for investors, with a number of China funds proving highly popular with fund managers. However, although growth is continuing to spiral, limiting factors implemented by the Chinese government could mean that 2007 is the year China investors feel the pinch.

These "gentle austerity measures" which Fidelity refers to have targeted domestic equity markets which have performed very well in the past two years, offering strong returns for investors. The Chinese government wishes to control the economy and prevent it from overheating, which explains its current measures.

Tightening measures in previous years – such as ones which limited environmentally-unfriendly industries - haven't affected new funds, particularly in an economic age when ethical investments have never been so popular. Indeed, the current measures that have caused Fidelity to voice its "volatile" message have now been relaxed and have lifted restrictions on new mutual funds.

Martha Wang, manager of the Fidelity China focus fund, said: "The falls are temporary setbacks for investors. Economic growth remains strong and corporate earnings are healthy.
For much of 2006 and into 2007, the rise in the market was relatively well supported by earnings growth as the market played catch-up following more modest performance over the previous couple of years.

"The market started to trade at valuation levels which were above historical averages so it is not surprising that the market has experienced these short term setbacks. Indeed, I believe that the recent falls should be considered a normal part of the market cycle given the scale and speed of the market's advance over the past 12 months and I continue to remain positive about China as a long-term investment."

For investors looking to spread their investments and reap strong returns, the long-term outlook for China reportedly remains strong. Its continued economic growth is set to continue with companies expanding at a decent rate. Whether results will be as strong as they were in previous years, only time will tell, but the consensus from Fidelity remains positive.

The Chinese government's measures are understandable and haven't come close to disrupting the activity of the funds.