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Forbes reports that over the last three months, Morgan Stanley Capital International's China index has risen just 5% while the broader Morgan Stanley EAFE index of
international stocks has jumped 15%.

According to one fund manager, this is not reason to flee China.


Edmund Harriss has managed the $113 million Guinness Atkinson China & Hong Kong Fund since 1998. He has delivered total returns of 7.1% a year, while China
funds on average have returned 6.6%.

Harriss prefers buying shares listed in Hong
Kong, rather than on the mainland exchanges because China-listed stocks
tend to sell for higher multiples due to a lack of liquidity.


Harriss' key observations:

  • Export manufacturing and local
    consumption are still driving the Chinese economy
  • Infrastructure spending has slowed and is now more directed toward water, power and transportation

  Favorite stocks:

  • Yanzhou Coal Mining (YZC)
  • Cosco Pacific - Manufacturer of shipping contatiners
  • Techtronic Industries (TTNDY) - Sells power tools to home improvement stores like Home Depot (HD)
  • China Telecom (CHA)
  • HSBC Holdings (HBC)
  • Esprit Holdings

Source: China fund manager discusses portfolio