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Invest in China via the US says trust manager

RENN's Russell Cleveland believes this is a more stable way to get exposure to this emerging markets country.

By Lora Coventry, Analyst, Financial Express
Thursday December 09, 2010

Investors and managers are at risk of missing investment opportunities as they get distracted by the "noise" of economic data, according to RENN Universal Growth Investment Trust's manager Russell Cleveland.

"There is a lot of noise around Ireland, Greece, and China, and that can mean you miss the melody of what’s really happening," he said.

He added: "Economic policy from the US, worries on the Eurozone and fears on a China bubble dominate the news, but often these factors have very little impact on my portfolio."

The Dallas-based manager invests in small, innovative Chinese companies which are listed in the US. He prefers companies which are led by their founders, and who have a significant holding in their own business.

"There are more than 300 China-based companies which are traded in the US, so it's a good universe we've got to pick from. Accessing China through the US is a more stable way to get exposure to the growth in the emerging markets country," he said.

Speaking on the possibility of a bubble in China, Cleveland says property might be cyclical, but it won’t necessarily mean anything to investors.

"There are too many apartments in China, that much is true, and real estate will be a cyclical sector, but not the whole country. China is very strong financially. The rate of growth might slow, but that's not a bad thing," he said.
He is looking favourably to 2011, saying the abundance of companies growing at double digit rates while selling for low single digit price-to-earnings ratios creates valuable investment opportunities.
Performance of trust vs sector and benchmark over 3-yrs


Source: Financial Express Analytics

While the manager is optimistic on the outlook for the US and China, his company has underperformed both its benchmark and its sector in the past year, Financial Express data shows.

"It's been a strange year for US-listed Chinese companies, with many making losses because of false claims on the validity of their accounting, which hit many companies," he said.

He added: "Those companies have now cleared their name, so we'd expect increasingly good performance going forwards."

He says that American-listed Chinese companies are trading at significant discounts to their China and Hong Kong listed peers.

"I believe the upward valuation trend will continue in 2011, as companies explore dual listings and other ways to increase their share prices. Since the end of the half year, many of the share prices which penalised returns in the first half of our fiscal year have recovered quite sharply," he said.

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jd Dec 10th, 2010 at 11:53 PM

Investing in China via the US is as dangerous as investing in China /HK in my view. Also, it looks to be a ploy that has been used to try to enhance returns for investors who think they are buying a US smaller companies fund. It has failed big time, though. You also have to ask why companies list in us instead of China. Were they so marginal that they couldn't raise money in China / HK?


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