INVESTMENT HAS poured into China since it began its open-economy policy 25 years ago. More recently, a booming economy and stock market has seen western investors increasingly seek exposure to China in their investment portfolios.
However, since last October, China's stock markets have had a torrid time, and so far this year Shanghai has had the honour of becoming the world's worst performing stock market - returning even less than the Irish market.
It is now hoped that the "Olympic effect", which has caused stock markets in the past five Olympic host countries to rise strongly in the 12 months after the Games, will bring some positive returns back to the Chinese markets.
According to Ned Davis Research (NDR), in the year after an Olympics, slowing industrial production, declining inflation and lower bond yields have led markets in host nations to perform well. The past five host countries all outperformed the MSCI World Index in the year after hosting the Games, with a median gain of 20 per cent for the host country stock market after six months.
So far, however, the Olympics are having a negligible effect on the Chinese market, as concerns over inflation and economic growth, as well as government involvement in the economy, has stymied stock markets.
Last week, the Shanghai Composite Index hit a 20-month low, having lost 60 per cent of its value since a peak in October 2007, making it the world's worst performing stock market.
Eugene Kiernan, head of multimanager funds with AIB Investment Managers, says it is unlikely that the games will have a similar effect as they had on the Australian and Greek markets.
"I have a sense that, given the scale of the country, the impact of the Olympics will be less in China than it has been for other host countries," he said, adding that other host countries, such as South Korea and Mexico, actually experienced slower growth in the decade after the Olympics.
It's all a long way away from last autumn, when PetroChina, the country's biggest oil producer, became the world's first trillion-dollar company. In its first day of trading on the Shanghai Stock Exchange, the company surpassed the combined market capitalisation of Exxon Mobil and General Electric, the world's next two most valuable companies.
Since then the stock has plummeted. Nevertheless, demand for exposure to the Chinese economy remains strong.
According to Merrill Lynch, despite the fact that investors have begun to move quickly out of emerging market equity funds because of the sell-off in commodities and rising interest rates in many of these economies, China, which is not a big commodity producer, has seen inflows of $49 million to equity funds in the past 10 weeks.
Moreover, in the long-term, there remain many arguments for investing in China, including the fact that it still has the largest pool of cheap and high-quality labour in the world, producing more science and engineering graduates than America, Europe or Japan.
There are three different types of China stocks that foreigners can purchase - China B-shares, Hong Kong red chips, and China ADRs.
China B-shares are Chinese companies which list their shares on the Shanghai stock exchange and Shenzhen stock exchange but are denominated in US dollars. These are considered high risk.
Less risky are Hong Kong red chips, which refer to large Chinese companies which trade their stocks on the Hong Kong stock exchange (also called H shares).
China ADRs refers to stocks that are issued by Chinese companies but traded in major US stock exchanges, such as the NYSE or Nasdaq. As China's stock markets are among the most volatile in the world and have been compared to "bubble" markets, as Chinese investors are restricted in moving money out of the country, Mr Kiernan said that investors looking to such markets have to accept some degree of volatility.
The easiest way for Irish investors to access the Chinese stock market is to invest through a fund.
There are several China-only funds on offer to Irish investors.
Quinn Life offers an index tracking fund, the China Freeway, which aims to track the FTSE/ Xinhua China 25 index, a measure of the performance of the top 25 companies listed in Hong Kong. Minimum investment is €1,270 and the annual charge on the fund is 1.5 per cent.
Rabodirect provides the Robeco Chinese Equities fund, the objective of which is to provide long-term capital growth by investing in equities of companies which have their registered office in China, or exercise a preponderant part of their economic activities in that country. RaboDirect charges a 0.75 per cent entry fee and a 0.75 per cent exit fee for this fund.
For investors looking for a purer exposure to China, Mr Kiernan recommended unit trusts or exchange-traded funds.
However, due to the volatility of the Chinese market, investors might do best to put their money in a more diversified fund covering the Asian region. Almost 20 per cent of AIB's Select Far East Equity Fund is invested in the Hong Kong market, with the rest spread around Asian countries as well as Australia, while Irish Life's Indexed Pacific Equity fund has a similar exposure to Hong Kong.
