There is more to the China investment story than buying mining stocks such as BHP and Rio as proxies, according to AMP Capital fund manager Patrick Ho.

Hong Kong-based Ho is in Australia this week to meet with investors to promote his fund, the $330-million AMP Capital China Growth Fund, which is listed on the ASX.

AMP created the fund in 2007 after becoming the first Australian asset manager to receive the QF11 licence from the government of the People’s Republic of China, which allows it to invest directly in China A shares, the stocks listed on Chinese exchanges that are otherwise only available to local investors.

Since inception in January 2007 the fund has returned 9.68 per cent, just under 2 per cent better than its benchmark, the S&P/CITIC 300 Total Return Index.

“There are two questions investors always ask me about China,” says Ho, who heads AMP Capital’s Greater China equities team.

“One is why not just buy BHP or Rio shares if you want to invest in China, and the other is why has the market lost so much ground in China despite the 7-per-cent growth in the last few years.” 

While conceding that Rio and BHP have provided exposure to China in the past, Ho says the approach may not be as effective going forward.

“The strong relationship between rising resource prices and an improving Chinese economy that was observed in the past may not always be the case in the future,” says Ho. “The Chinese economy is set to enter a more consumption-driven model which is being facilitated by accelerated urbanisation, enhanced social welfare and fast changes in lifestyle.”

The fund, in which the AMP parent is the biggest shareholder with a 37 per cent stake, is strongly weighted towards financials, consumer staples and utilities. Industrials make up less than 2 per cent of the portfolio.

Fears of a hard landing for China, which have seen A-share returns plunge by 25 per cent in the last three years despite economic growth that would be stellar in any other country, have receded and Ho sees the Chinese market moving into a new phase in its cycle.

“The Chinese story in this cycle is one about sustainable growth,” says Ho.

“Direct exposure to Chinese equities to access the new phase of consumption driving Chinese growth could offer Australian investors a diversified investment with an attractive upside.”

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