Tens of thousands of British investors will be wary of any bullish noises coming from fund groups championing China.
With Chinese New Year celebrations about to start this week, several groups are encouraging investors to keep faith with China despite some dismal returns of late.
China has been the phenomenal growth story of the 21st century and investors who caught the bug early will have reaped handsome rewards. But as the story unfolded, more investors jumped on board hoping to make a quick mint from the world's fastest-growing economy. However, growth has slowed and many investors will be cursing their move east.
Last year one of the most popular unit trusts, Jupiter China, had a torrid time, falling by 23pc, while investors who ploughed millions into Fidelity China Special Situations, managed by Anthony Bolton, have seen similar losses.
So what next?
Observers are split into two camps – those forecasting a soft landing and others who fear a major crash. But with GDP growth expected to be about 8pc this year, investment houses in the region are pretty upbeat.
Philip Ehrmann, the manager of Jupiter China, remains defiant; his fund has recovered in the past three months. "Valuations are very low. We are close to Lehman 2008 lows, yet our companies are in far stronger shape," he said. "Any sign of improving liquidity or reform measures will kick off a rally – and stimulus and reform measures are being announced."
Martha Wang, a Hong Kong-based portfolio manager of Fidelity's China Focus fund, admitted that China's economic growth was expected to moderate as external demand from Europe and the US slowed and domestic economic activity fell, but she also remained optimistic.
"I am positive on the outlook for the next 12 months," she said. "Indeed, there have only been a few periods in China's stock market history when valuation levels have been as attractive as they are currently. Most of the economic risks have been largely priced in."
While the impact on China from the West's government debt crisis should not be underestimated, strong consumption from within the country is expected to help pick up the slack. Although the slowdown of growth in Western developed markets would hurt the outlook for export-related industries, the real impact on China's growth should be immaterial given the insignificant contribution of exports to GDP growth (about 1pc), experts said.
Yee Hou Seck, a Hong Kong-based portfolio manager at First State Investments, was equally dismissive of any bearish thoughts. "We remain positive about the opportunities for long-term equity investors but accept that there are a number of issues which could continue to put pressure on the market over the short term," he said.
However, one of the burning issues is a potential property bubble. Residential property has boomed in recent years but there is a danger that it could all end in tears – and bring the whole economy down.
Edward Chancellor, a highly regarded analyst from GMO, a US-based global investment management firm, reckons that Chinese real estate casts a long shadow over the global economy.
He said: "China has replaced the US as the largest contributor to global economic growth. This contribution has depended ultimately on China's booming real estate market. It's no exaggeration to say that Chinese property has become the most important sector in the universe.
"Yet a giant smog of unreality hangs over Chinese property. SocGen calculates that over the past decade China has completed 16bn square metres of floor space. This is equivalent to building Rome every two weeks. This construction boom has resulted in vast 'ghost cities' across China."
Despite the doomsayers casting doubt on China, emerging markets specialist Mark Mobius was quick to defend the economic giant.
Mr Mobius, executive chairman of Templeton Emerging Markets, said: "Rising unemployment, wealth inequality and inflation are things that we have everywhere in the world, and many countries are faced with these challenges. But the Chinese government has shown its ability to make policy moves to attack these problems."
Mr Mobius has a big chunk (about 20pc) of his portfolios invested in China and is a firm believer in its continued domestic consumption keeping the economy powering ahead.
"There is a lot of room for more infrastructure spending and the recent rail crash highlighted that this is definitely required. Plus, there is still a big bottleneck in moving goods from cities to the coast, so more investment will be needed here," he added.
Another potential fillip for China is an expected 5pc increase in births – children born in a dragon year are believed to excel and become natural leaders, according to Chinese astrology. Given a population exceeding 1.3bn, this would equate to an extra 800,000 babies being born this year.
Not surprisingly, international brands are expected to benefit the most from this phenomenon.
James Roy, senior analyst at China Market Research Group, said: "Most Chinese mothers are heads of the household and are extremely cautious about what they buy for their home. When shopping for anything that their family will consume or come into contact with, the top concern is product safety, especially toxicity, due to the many product and food safety scandals. So brands with strong reputations are extremely important. Women we talk to say they are willing to pay up to 30pc more for brands whose reputations for safety they trust when buying anything their family members might eat or touch."
Many international brands selling baby products in China have already seen their share price rise, as investors anticipate a spike in demand.
There is also a big trend among young Chinese mothers towards using disposable nappies, mainly because of the greater comfort they offer babies. Five of the top six nappy makers are international brands, and they account for just over 50pc of the disposable nappy market.
Mr Roy added: "Pampers (Procter & Gamble owned) and Huggies (Kimberly-Clark) brands have done a successful job establishing themselves with very strong marketing. Both offer a wide range of nappies from more affordable made-in-China lines to more premium imported ones and are in a good position to benefit from the dragon year baby boom."
Financial advisers are quick to remind investors that strong economic growth doesn't necessarily translate into strong stock market returns e_SEnD after all, last year China was one of the worst performing of all investment sectors.
Patrick Connolly of AWD Chase de Vere said: "It is important that investors don't get suckered into any hype regarding China and invest too heavily in the region. There is undoubtedly strong potential for stock market growth but this is likely to be coupled with huge levels of risk and volatility."
In common with many advisers, Mr Connolly suggests that China should make up only a relatively small proportion of your portfolio.
