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Does it make sense to invest in China?

- Alan Lavine and Gail Liberman

At first blush, the China story sounds good.

The country is a major exporter. It may have the largestpersonal computer market in the world in a few years. China's $10billion computer chip market is expected to grow 33 percent overthe next three years, according to published reports. China'seconomy, growing at about a 7 percent annual rate, should surpassthe French economy this year and Britain's next year, Bloombergreports.

So are you ready to jump on the bandwagon? Be careful. Youcould be in for a wild ride. Take the Investec China and Hong KongFund. This fund has outperformed other China funds since mid-1994 because it sticks with large Hong Kong-based companies, according to Morningstar Inc., Chicago.

Perhaps, if you bought and held this fund for a lifetime, youmight show some hefty gains. But until then, be prepared for roller coaster ride. In 1999, for instance, the fund gained 66 percent. In 1997, 1998 and 2000, however, it lost -21.3 percent, -15.3 percent and -7 percent, respectively. This year, the fund is down -14 percent.

Walter Rouleau, editor of Growth Fund Guide, Rapid City, S.D.,favors the Matthews China Fund because of its recent strongperformance. He also likes the China Fund, a closed-end fund thathe considers a bargain.

For most investors, the best way to invest overseas is through an international fund. International funds invest all around the world--except in the United States—and are well-diversified.

More venturesome investors, who like the Asian markets, mightconsider a fund that invests in the Pacific region, excludingJapan. That way you get a stake in South Korea, China, Hong Kongand Singapore. One example is The Matthews Asian Growth and Income Fund. Highly rated by Morningstar, this year it's up 9 percent and over the past three years has grown at a 22 percent average annual rate.

Even though the fund owns a large stake in utilities, financial, industrial and service company stocks, it's also volatile: It lost 23 percent in 1997.

Bottom line? The China market isn't for the faint of heart. Or, those who don't like market volatility, or, taking risks.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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