The manager of the newly launched onshore Baring China Growth Fund, William Fong, believes that valuations in China have become more attractive following the recent market correction. He adds that both medium- and long-term prospects for the Chinese economy remain positive.

The Baring China Growth Fund is a UK-domiciled open-ended investment company (OEIC) focusing on small, medium and large listed companies within any sector and geographical region that have the potential to benefit from the growth and development of China. The fund may also invest in derivatives.

Barings also launched an offshore China-focused fund in April 2008, the Baring China Select Fund, which is an Irish-domiciled OEIC.

Fong says, ‘We firmly believe that China and Asia represent bright spots in an increasingly gloomy world and that economic fundamentals in the region should act as a strong buffer against the events in the US credit markets. Domestic consumption is in full bloom, the renminbi is continuing to appreciate and we believe that secular growth and improving corporate governance will drive a re-rating.’

At a stock level, a key theme of the Baring China Growth Fund is to focus on identifying beneficiaries of consumption growth in China. In addition, the fund manager will look for beneficiaries of strong infrastructure spending, including construction companies and railway operators, as well as restructuring plays and industry consolidators.

Fong adds, ‘We do not see a change in the economic fundamentals. Corporate balance sheets in the region are as strong as ever, and the rapid build-up of domestic savings and the recycling of petro-dollars should continue to attract increasing asset allocation into this region, while valuations have become more attractive following the recent correction.

‘It is true that concerns over inflation and credit tightening in China have added to the negative sentiment in the market. However, we have long argued that the key to long-term growth in China is about sustaining a steady GDP growth of seven per cent to 11 per cent, not returning to a period of volatile swings in growth as we saw in the 1980s and early 1990s. A short-term tightening or slowdown in growth would still leave the growth numbers at a healthy and manageable level in our view.’