The investment objective of the Neptune China Fund is to generate capital growth from investment predominantly in Chinese securities, or in the securities issued by companies transacting a significant proportion of their business in China.
China's economic growth is moderating, but in a desirable way, reducing the risk of overheating and easing inflationary pressures. Whilst not immune to the global macroeconomic slowdown (most evident in the hard-hit export sector, which the Fund has long avoided), the majority of China's growth is generated domestically, leaving the country in a position of considerable strength and insulation.The quarter saw signs that Beijing is preparing to support the economy, as its fears of overheating growth and runaway inflation have been allayed.Yet this positive outlook has not been reflected in equity market performance. As the credit crisis fallout gained traction and panic gripped global markets, a combination of extremely negative global risk appetite and international deleveraging ensured no market was spared in one of the most volatile periods in market history.However, the reverse side of this process is that our favoured themes in this long-term quality growth story are investable at cheaper multiples. These themes remain largely unchanged: infrastructure-facing stocks benefiting from China's large-scale development build-out, and the importance of the Chinese consumer and the rise of domestic consumption.
There are expectations of interest rate cuts and stimulatory fiscal measures to promote growth in the short term, and the government's position of fiscal strength and current account surplus gives it the ability as well as the will to do so.In summary, we believe that the Neptune China Fund is well positioned to deliver continued outperformance, both in these turbulent times and taking advantage of the enormous potential for continued Chinese growth over the long term.