Recent actions by the Chinese regulators to curb lending has further unnerved investors already unsettled by recent comments from Ben Bernanke. The interest rates Chinese banks charge each other surged last week to record highs before falling back.  And following a recent statement by the People’s Bank of China, the Shanghai Composite Index fell 5.3% Monday night.

Adrian Lowcock, Senior Investment Manager, at Hargreaves Lansdown;-  

“China’s new leadership is addressing some of the risks that have been building up in the banking system, inevitably this could result in some short term pain, possibly impacting on growth but it should benefit China in the longer run.  Chinese stock markets do look cheap at present,  based on 20 years of information.   In addition it is important to remember that China is a state-controlled economy and therefore it is very difficult to make a clear judgement on the accuracy of the information being provided.   There are some concerns China’s shadow banking system will spiral out of control, however it seems unlikely the People’s Bank of China will let the system fail.“

“In line with their 5 year plan China is undergoing a change from an export driven manufacturer to a consumer focused economy. This transition is not going to be smooth and there will be some bumps along the way.  China continues to grow, at around 6 to 7% per annum, but like all emerging markets this does not lead to a smooth rise in the equity market.

In 2007 investing in China was very popular and as a result valuations rose to very high levels. The market has underperformed both developed and emerging markets since. There are clearly issues in China’s financial system and authorities are now taking action to deal with these. For long term investors that want to have exposure to China this setback could be providing an opportunity to invest. Company earnings are rising and valuations are looking much more attractive. Most investors can get sufficient exposure through a well-diversified emerging markets fund such as First State Asia Pacific Leaders which has 23.9% in the region or Aberdeen Asia Pacific which has 18.47% in the area.   For investors wishing to take a more adventurous approach and are able to tolerate a higher level of risk then Jupiter China, managed by Philip Ehrmann, provides exposure.”