China's fundamentals are compelling: A burgeoning middle class continues to increase its consumption as the country expands its infrastructure to meet the needs of its population. China is a good play for the long term, but the explosion in Chinese lending could make this country an especially profitable investment for the next few months. My flagship newsletter Fidelity Independent Adviser recently named Fidelity China Region Fund ( FHKCX) as the "Best Mutual Fund for Third Quarter 2009," reflecting the relative strength I have seen in Chinese investments and my outlook for the latter part of this year. One factor that makes FHKCX stand out from the pack is fund manager Wilson Wong. Before taking the helm at China Region, Wong ran Fidelity Advisor Korea and headed the Asia ex-Japan group for Fidelity International Small Cap since July 2005.
Morningstar ( MORN) analyst Christopher Davis notes, "Wong deserves credit for some deft maneuvers." Davis believes that Wong succeeded in a tough economy because he "de-emphasized consumer-discretionary and export-oriented industries, which were hurt most by the global economic slowdown, and turned to more-defensive (domestically driven) areas like telecom." Davis' analysis rings particularly true when you delve even further into Wong's biography to learn that he graduated from the Chinese University of Hong Kong and gained firsthand experience as a securities analyst in Hong Kong. During the global economic slowdown as Chinese funds saw assets slashed, Wilson turned inward rather than sticking to the export driven approach favored by other funds. Wilson's disciplined approach should also help FHKCX thrive on the upswing.
Aggressive lending on the part of Chinese banks should continue to help investors who flock to funds like FHKCX. Based on the current exchange rate of 6.83 renminbi to the U.S. dollar, Chinese banks loaned $358 billion in the first half of 2008 and $719 billion in all of 2008. Through the first half of 2009, banks have lent $1.1 trillion; Reuters reports that the Bank of China's research department predicts that loan growth could surpass $1.4 trillion by the end of 2009. Those loans paid off for stock investors -- China's Shanghai Composite Index gained 63% in the first half of the year, 30% in the first quarter and 25% in the second quarter. The market capitalization of Chinese shares has risen from about $1.8 trillion at the end of 2008 to $3 trillion this July.
The ETF Market Opportunity Fund ( ETFOX), Fidelity Independent Adviser's "Best Mutual Fund for Second Quarter 2009," had a total return of 16.7% for the second quarter. ETFOX's unique blend of mutual fund oversight and ETF transparency has helped this fund garner a five star rating from Morningstar for the three-year period. The popularity of ETFs shows no signs of waning and the increasingly complex ranks of the ETF universe can be difficult to decipher. ETFOX manager Paul Frank distills the influx of ETFs with a mathematical and fundamental ranking system to provide investors with a momentum based portfolio. ETFOX' top holdings as of June 1, 2009, were: PowerShares QQQ ( QQQQ), Vanguard Small Cap ( VB), Vanguard Growth ( VUG), iShares Dow Jones US Aerospace ( ITA), iShares Russell 1000 Growth ( IWF), iShares Dow Energy ( IYE), iShares iBoxx Investment Grade ( LQD), iShares MSCI Hong Kong Index ( EWH), Revenue Shares Small Cap ( RWJ), Ultra Short Lehman 20+ Year ( TBT).