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Year of the Snake offers opportunities in China

Tomorrow is the start of the Chinese New Year of the Snake, but private investors seem to see only upward ladders ahead as sentiment towards China takes a turn for the better.

Last month saw three Asia-Pacific funds among the top 10 bought by clients of TD Direct Investing – Fidelity South East Asia, Aberdeen Asia Pacific, and First State Asia Pacific Leaders.

Stuart Welch, chief executive at TD Direct, said: "Positive news in recent weeks about China's recovering economy seems to have prompted an appetite for the land of the rising sun among investors."

Darius McDermott, managing director at broker Chelsea Financial Services, said: "Despite all the talk of a hard landing in China last year, the market did very well during the year of the Dragon, with the MSCI China index returning 15.95% – much better than the previous year of the Rabbit when the market fell by 8.11%."

Mr McDermott said the market was still at a substantial discount to its long-term history and well below the five-year average.

He said: "Just because valuations are cheap it doesn't mean they can't get cheaper.

"But I'm a firm believer that if you buy at a low price, you have a decent chance of making better returns than if you buy when stocks are more expensive. However, China is one of the highest risk markets and there is corruption, so investors should be aware of the risks before they commit to the asset class.

"For people willing to take the risk, I think now may be a decent time to buy. Looking at the funds available to new investors, I prefer Invesco Perpetual Hong Kong & China and First State's off-shore fund, China Growth."

For a wider spread, Mr McDermott liked Liontrust Asian Income and M&G Global Emerging Markets, funds where he said the managers were very positive on China.

Philip Ehrmann, manager of the Jupiter China Fund, believes a recovering economy, a more stable political backdrop and attractively-priced stocks make a solid case for investing in China.

He said: "For much of last year it seemed fashionable among economists, political commentators and analysts to talk about China as an accident waiting to happen.

"A sharp slowdown in economic growth, worries about inflation, the threat of a housing bubble and a tricky change of leadership for the Communist Party were all cited as reasons for investor caution.

"Fast forward to 2013 and these fears now appear overblown.

"Shares in Chinese companies are cheap at a time when stock market performance is set to improve markedly."

"With such varying reports in the news – such as talk of China recovering combined with ongoing pessimism about the UK economy – investors should take heed from the snake and remember to remain focused and disciplined when it comes to investing."

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