Visit www.gartmore.com

• Over 12 months, the Fund has outperformed the index by 4.6%
• Overweights in Hong Kong Aircraft Engineering, Singamas and Bosideng all contributed
• New positions in Mindray and China Oilfield Services

Review
The Gartmore China Opportunities Fund lost 2.5% over the month, while the MSCI Zhong Hua Index fell 1.2%. Year to date, the Fund has performed in the top quartile in its sector.

Overweight holdings in Hong Kong Aircraft Engineering, Singamas and Bosideng all delivered the month’s strongest returns. Hong Kong Aircraft Engineering (Haeco) rose strongly after Swire Pacific Limited, the biggest shareholder in Cathay Pacific Airways offered $1.2 billion for all of Haeco’s remaining shares as travel demand rebounded. Singamas is a beneficiary of improving dynamics in the shipping containers market. As the container shipping industry enters its peak season, Singamas is well positioned to benefit from an unprecedented shortage of containers. Menswear company Bosideng is set to deliver impressive FY2010 results due to the unseasonably cold and lengthy winter and a shift in product mix towards higher margin new products. We believe Bosideng continues to offer good value relative to its sector.

The Fund’s overweight positions in Baidu, China Shenhua and Lenovo all detracted from performance. After a prolonged period of outperformance, Baidu pulled back slightly due to profit taking. We retain our conviction for the company given its control over 64% of China’s search market and its target for 79% next year. Coal miner China Shenhua was sold off as China announced a 5% resource tax on crude oil and natural gas sales and a 2-5% tax on coal in the Xinjiang region. This policy is expected to boost production costs for Shenhua. PC maker Lenovo fell over the month following China’s announcement that it would allow the yuan to move freely. Lenovo earns more than half its income from sales overseas.

There was some portfolio activity over the month. We bought medical devices producer Mindray and the offshore oil and drilling company, China Oilfield Services. After a sell off following a weak quarterly report on delayed government spending, we took the opportunity to buy Mindray. Mindray is a strong company operating in an attractive industry. The company is benefitting from domestic growth and strong export markets. Following a pullback in the market, we also bought into China Oilfields at an attractive valuation. The industry is offering good long term potential and should allow the company the opportunity to repair its balance sheet. The Fund disposed of a number of small positions in several cyclical companies over the month. This allowed the manager to focus on a more concentrated portfolio of stocks offering greater unexpected earnings.

Outlook
The global macroeconomic outlook is mixed with positives from the US and negatives from Europe. Within China, growth is strong but moderating from the heights of the first quarter. Recent action by the authorities to reduce property prices has been prudent but is causing a tighter monetary environment. Chinese authorities have also announced plans to make the Chinese yuan exchange rate more flexible. We expect China will benefit as the move allows for more flexibility in policy going forward and should in turn drive consumption higher. Nevertheless, with European economic weakness hindering export growth, we don’t expect to see any large currency moves in the short term.

US macroeconomic data appears robust while Europe is dealing with economic and political issues that look set to rumble on. Chinese economic activity is robust but concerns over tightening in the property sector have caused investors to take a more cautious approach. Notwithstanding many global macroeconomic uncertainties, we expect any pull-back in the Chinese market to present a good opportunity to top up our most compelling positions. We expect China to continue to benefit as a recovery gathers momentum and we remain confident that Chinese equities represent decent value. There are still many doubters on China which continues to offer the potential for unexpected earnings growth particularly within the consumer sector.

Source for all fund performance data: Lipper. Basis: Mid to mid, net income reinvested and net of fees in sterling terms as at 30 June 2010, unless otherwise stated. The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not a guide to future performance. Please ensure investors read the Simplified Prospectus before investing. The Fund can invest in smaller companies which can be more risky than investing in larger companies due to lack of liquidity and increased volatility. Emerging markets tend to be more volatile than more established stock markets and therefore your money is at greater risk. Other risk factors such as political and economic conditions should also be considered. Funds investing in overseas securities are exposed to and can hold currencies other than sterling. As a result, exchange rate movements may cause the value of investments to decrease or increase. All opinions and estimates constitute the Fund managers judgement as of 15 July 2010 and are subject to change without notice. The views expressed must not be taken as an offer to buy or sell units or shares in the markets mentioned. These views are provided for information purposes only.

• This entry was posted on: Friday, 16 July 2010 16:04 BST
• Filed under: News & Opinion
• Tags: Charlie Awdry, Gartmore China Opportunities Fund, News
• Follow responses with this feed: RSS 2.0