According to Financial Express data, the MSCI China index has posted an increase of nearly 260 per cent in the last ten years.
The Chinese growth story has attracted a huge degree of interest, illustrated by Anthony Bolton's high profile launch of the Fidelity China Special Situations fund earlier this year, and the Investment Management Association's (IMA) decision to introduce a China sector in 2011.
Bolton has said on a number of occasions that China is the investment opportunity of this decade, and many agree with him.
"The secular drivers of emerging markets such as China remains intact: attractive demographics, competitive advantages from low labour costs, an abundance of natural resources, increasing prosperity, productivity gains and sound fiscal management," said Nick Price, manager of Fidelity's Emerging Market fund.
"These are especially attractive in comparison to the developed world, which is faced with fiscal deficits, imbalances brought on by quantitative easing and a deleveraging consumer."
Performance of MSCI China vs World over 10-yrs
Source: Financial Express Analytics
Very few managers would disagree that the fundamentals are positive in the long term but prospects in the short term are far more difficult to call. Though star manager Angus Tulloch believes that it would be wrong to ignore the exceptional medium and long term prospects for China, he is wary of rising inflation.
"We believe that interest rates will have to rise much more than the market now expects," said the manager, who heads up the First State Asia Pacific and Asia Pacific Leaders funds.
"There is a danger that negative real interest rates will continue to result in a flight to tangible assets such as gold."
Manager of Premier China Enterprise Fen Sung believes that such concerns are overstated, as short term food shortages are the main reason why the consumer price index (CPI) has increased to 5.1 per cent in recent weeks.
He said: "There is no doubt that the Chinese government were too late in raising interest rates and appreciating the Renminbi, but I don't think that investors need to panic at this stage. If you strip out food price increases from this 5.1 per cent figure, the rate of inflation is only 1.9 per cent."
"I will only be seriously concerned if rates exceed 7 per cent, but I doubt that the government will allow this to happen."
But Tulloch is less optimistic: "We do not believe that recent food price increases can be entirely attributed to seasonal shortages and suspect that the real rate of inflation is somewhat higher than the official statistics indicate."
Performance over 5-yrs
Source: Financial Express Analytics
Despite inflation concerns, forecasts for growth in 2011 are encouraging. According to Bill O’Neill, chief investment officer at Merrill Lynch, the Chinese economy will grow by 9 per cent in 2011.
Star manager Anthony Bolton added: "The Chinese economy has not been slowing down as fast as earlier expected and this will probably now happen in 2011. However, I continue to believe that the growth rate in China will still be very attractive relative to the growth rates being seen in the developed world."
But many fund managers believe that valuations in the Chinese market are unattractive, and do not present investors with good value for money. Head of multi-manager at Cazenove Marcus Brooks has shifted his portfolio from emerging markets to developed markets in recent weeks.
He said: "It's not that we're particularly optimistic on the outlook, but it seems that the UK and US markets have opportunities that have been left behind. Many companies have decent yields, relatively low leverage and good cash flows, which offer far better value for money than companies in the Far East like China."
Many IFA's have also been pulling money out of countries like China due to fears of overvaluation in the region.
Jonathan Wallis, director of fund research at IFA Allenbridge said: "We've cut back on emerging markets in our portfolio of late. We still like the region in the long-term, but there is better value in Western-focused funds in the short term."
A spokesperson for Raiffeisen Capital Management, however, thinks that valuations are fair, particularly when compared to other emerging markets.
"With a price-earnings ratio of around 12 and a price-book factor of 2 estimated for 2011, the MSCI China is currently trading in line with its long-term historical average. Compared to other emerging markets, there do not appear to be any worrying aspects in relation to valuations, and indeed China actually looks cheaper in some respects."
"India, Indonesia and even the Philippines and Malaysia are clearly more expensive than China in terms of valuations."