Does It Make Sense To Invest In China?

by Alan Lavine and Gail Liberman

At first blush, the China story sounds good. The country is a major exporter. It may have the largest personal computer market in the world in a few years. China's $10 billion computer chip market is expected to grow 33 percent over the next three years, according to published reports.

China's economy, growing at about a 7 percent annual rate, should surpass the French economy this year and Britain's next year, Bloomberg reports.

So are you ready to jump on the bandwagon? Be careful. You could be in for a wild ride. Take the Investec China and Hong Kong Fund. This fund has outperformed other China funds since mid-1994 because it sticks with large Hong Kong-based companies, according to Morningstar Inc., Chicago.

Perhaps, if you bought and held this fund for a lifetime, you might show some hefty gains.

But are you prepared for this roller coaster ride? I'm not knocking the fund. It gained 66 percent in 1999. However, in 1997, 1998 and 2000 it lost -21.3 percent, -15.3 percent and -7 percent, respectively. This year, the fund is down -14 percent.

Walter Rouleau, editor of Growth Fund Guide, Rapid City, S.D., favors the Matthews China Fund due to its recent strong performance. He also likes the China Fund, a closed-end fund that he considers a bargain.

For most investors, the best way to invest overseas is through an international fund. International funds, which invest worldwide --except in the United States--are well-diversified.

More venturesome investors, who like the Asian markets, might consider a fund that invests in the Pacific region, excluding Japan. That way you get a stake in South Korea, China, Hong Kong and Singapore.

The Matthews Asian Growth and Income Fund is highly rated by Morningstar. This year, it is up 9 percent. Over the past three years, it has grown at a 22 percent annual rate. The fund owns a large stake in utilities, financial, industrial and service company stocks. Nevertheless, this fund also is volatile. It lost 23 percent in 1997.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.