The world's second-largest economy has seen a slowdown in its GDP levels in recent years that has caused many investors to be sceptical of it. Its markets have also performed poorly.
Performance of indices over 1yr
Source: FE Analytics
However, Cockerill says that political and economic changes afoot in China mean it could be ready to rebound.
“China hasn’t done very well, which is invariably quite a good time to buy into a market,” he said. “Everything is perhaps lining up for China,” he added. Cockerill explains that as the Chinese government reveals more of its economic and reform plans for 2014, the more that confidence grows, which is causing fund managers to sit up and take notice.
Chinese leaders have mounted ambitious reform goals that aim to change the banking system and open up the country’s capital markets.
Although there are concerns around the stability of the Chinese banking sector – some experts have warned it could face a 2008-style financial crisis – Cockerill believes the four big banks in China will not be affected.
Cockerill’s views echo those of veteran investor Anthony Bolton, whose Fidelity China Special Situations trust is starting to feel the benefits of growing confidence in China.
“An Asian banking crisis is extremely unlikely any time soon,” Bolton said. “What is undoubtedly happening is that bad debts are going up at banks, but I don’t think it will bring down the system. There are issues they are going to have to deal with, but I don’t think it’s going to bring the house down.”
The manager predicted valuations in China would go well above trend in this cycle, although he said the real opportunities are in the private sector rather than government-owned enterprises.
“What you don’t want to own in China is an index fund, because there you get exposure to large, state-owned companies. For them, things will get tougher,” he said.
“The outlook for China isn’t black and white, it’s very much grey, but this is a time you stay in equities and enjoy the bull market, which I think will continue.”
While he rates Bolton’s specialist trust, Cockerill says that the best approach for most investors is to use a broader emerging markets fund.
“For lots of investors, a general approach is best,” he said.
Rowan Dartington uses the First State Global Emerging Markets and First State Global Emerging Markets Leaders funds for its exposure to this sector, but both of these are now soft-closed.
However, Cockerill says First State has been outspokenly bearish about China, which means he is starting to look elsewhere for exposure to the region.
To access the potential in China, Cockerill prefers the Fidelity China Special Situations trust and the First State Greater China Growth fund.
The Fidelity investment trust has come under much criticism for lagging behind the market since it launched in 2010. While the trust is down 11.44 per cent over the last three years, it has rallied strongly over the past 12 months, beating the MSCI China index by more than 20 percentage points.
Since launch, the trust has only just eclipsed the returns of the market, with gains of 6.98 per cent.
Performance of trust vs index since launch
Source: FE Analytics
Cockerill adds that the trust is trading on a discount of 6.8 per cent, meaning investors can access the portfolio for less than the value of its underlying assets.
However, the trust is highly geared at 20 per cent, so investors should take on board the added risk of leverage in the fund. Also, Bolton is set to retire in April next year, with control being handed over to Dale Nicholls.
The £812.6m trust has ongoing charges of 1.78 per cent.
Although as a group, First State is negative on China, Cockerill says this means the managers of the Greater China Growth fund will be more cautious in their investment approach.
“With this fund, you can be invested in China and get a cautious approach. There is no doubt China can hold nasty surprises at the company level,” he said.
The five crown-rated First State fund, run by FE Alpha Manager Martin Lau and Sophia Li, has been less volatile than both the MSCI Golden Dragon index and the IMA China/Greater China sector over the past five years, with an annualised score of 15.28 per cent.
First State Greater China Growth has not performed as strongly over the last 12 months, though it has still beaten the sector and index. The fund has gained 383.88 per cent over the past decade, doubling the returns of both measures.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.84 per cent.
Cockerill also likes Newton Asian Income and Henderson Asian Dividend Income, but says this is more for their income-paying attributes than for their exposure to China.
