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The BlackRock China Fund is co-managed by Jing Ning and Alan Wang. Ning joined BlackRock from AIG Investments in January, while Wang joined the fund house in May from Principal Global Investors. Scott, meanwhile, joined BlackRock in January 2007 from Prudential Asset Management Hong Kong where he was CEO and CIO.
The BlackRock China Fund will invest in companies that are benefiting from the mainlandÆs increased consumer spending, strong infrastructure investments and export growth. BlackRock has identified five major investment themes in China: exporting capital to buy brands, technology and basic resources; industry giants emerging from consolidation; quality-driven consumerism; integrated Greater China economic zones; and investments to build a green China.
The fund will invest at least 70% of its total assets in companies domiciled in, or with large business interests and activity in, China. Specifically, these are Hong Kong-listed red-chips and H-shares. There are 93 red-chips with a market cap of around $635 billion, while there are 147 H-shares with a market cap of around $547 billion.
The rest of the fund will invest in Singapore-listed China stocks, US-listed China stocks, China A-shares, China-B shares, and companies listed in other markets such as Taiwan and Australia that stand to benefit from the mainlandÆs expansion.
The fund is benchmarked against the MSCI China 10/40 Index, which is used by UCITS-compliant funds. The index takes into account certain investment limits and constrains the weight of any single group entity at 10% of a fundÆs total assets and the sum of the weights of all group entities representing more than 5% of the fund at 40% of the fundÆs total assets.
The volatility of Chinese equities over the past months has forced many fund managers to exercise caution in that market, but it is not a deterrent for BlackRock.
BlackRock notes that current valuations are looking relatively oversold when compared with a 10-year price/earnings history for the MSCI China Index. The fund house says current valuations already reflect that the economy is in a cyclical trough and offer attractive risk/return opportunities. China shares have already priced in a cyclical downturn and a consensus 23% earnings growth for the MSCI China Index in 2008 is achievable, the firm adds.
ôChinaÆs economy has been a remarkable growth story since the 1980s. Its equity markets have typically been volatile, governed by emotions,ö says Ning, adding that a disciplined, valuation-driven approach to investing is essential in this market.
For long-term investors, BlackRock says now is a good time to invest in China because it is moving from exporting deflation to exporting capital, and is transitioning to a more sustainable economic growth model.
China is at a ôturning pointö, says Scott, because ôit is moving from a low-margin, labour and energy-intensive exporting economy, to becoming a domestically-fuelled economy driven by its transition to a consumer society.ö
BlackRock has identified 2,100 companies as this fundÆs investment universe. Only stocks with a market cap of more than $500 million and a daily liquidity of more than $1 million will be considered for inclusion in the portfolio. Economic valuations, earnings sustainability, earnings revisions, and price actions are among the factors that will help the fund managers narrow down the portfolio to around 30 to 70 stocks. The fund will cap its single stock exposure to 10% while allocation to cash will be limited to 10%.
The fund is registered for public distribution in Hong Kong, Luxembourg, Jersey, Guernsey, Iceland and the United Kingdom. It is registered for accredited investors in Singapore.
BlackRock is one of the worldÆs largest publicly traded investment management firms, with around $1.4 trillion in assets under management as of March.
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