Jonathan Schiessl, manager of Ashburton Chindia Equity Fund and Asia Pacific Equity Fund comments on why now is the time to be increasing weightings to China:

"This is a very opportune time to be discussing China. Not for many a year has opinion been so divided between bull and bears, with the bear corner at the moment having the upper hand. We at Ashburton are firmly in the bullish camp and over the last month or so have been increasing our weightings to China in the appropriate funds.

"We are China bulls and believe now is a good time to start investing in China. Of course the investment timescale is everything and whilst we can’t say with complete certainty that the lows are already in place for the Chinese markets, we do believe that we are there or thereabouts.

"First and foremost the reason is falling inflation (unlike virtually every other emerging and developed economy). With inflation now being on a firm downward trajectory for the last three months (and estimated to fall to between four to five percent by yearend) the government can start easing certain policy measures. The falling commodity prices that we are currently seeing will certainly help. Rhetoric over the last few days has noticeably changed from a priority on inflationary concerns to a return to fostering economic growth.

"We are not suggesting that interest rates will be slashed anytime soon, but with a deteriorating global backdrop we expect the government to start introducing measures to boost domestic consumption and even some help to the beleaguered export sector. We might well see the pace of Renminbi appreciation slow or even see some depreciation against the US$.

How will this impact markets?

“A change in policy direction is bullish. Falling commodity prices are bullish. Markets are currently pricing in significantly slowing domestic growth, slowing international growth and rising inflation. Worries are abounding about margin pressure and falling corporate profitability. We would argue that a lot of the negatives are already 'in the price' and hence why we are positive.

"The domestic share market is down well over 50 percent from its October 2007 highs. The Hong Kong China indices have fared little better. Individual stocks in many cases are down much further. From a valuation perspective the Chinese listed universe has gone from being overvalued to cheap (although not extremely cheap). We are focusing on domestic sectors, mainly consumer related and infrastructure related and also on 'clean and green' areas.

Clean and Green? China?

"As part of China’s new 'harmonious society' ideal, moves to clean up the terrible environmental mess of the last three decades are afoot. Seriously. We’ve seen talk of this for some time, but now legislation has teeth and more importantly bureaucrats at the local level will not gain promotion without meeting certain environmental targets. The change is not a result of international pressure, but simply because the environmental impact on the Chinese population has become untenable.

"China is changing. No longer is China the destination for low cost production, but government policy is helping China move up the value chain. Low cost producers are usually firms that are the worst environmental polluters, most energy intensive and have the worst record on labour treatment.

"Within our Chinese portfolios we currently have about 15 percent weight to 'clean and Green' stocks.

The risks?

“The biggest risk we see is inflation. Whilst we think it is heading lower, all bets would be off if oil were to hit $200 per barrel!

"And from a sentiment perspective, there would be risks if Western tourists get caught up in some Tibetan protests during the Olympics."