The spectacular scale of the opening ceremony of the 2008 Olympic Games is a vivid reminder that China's economy could be the biggest in the world within a decade.
By Jeremy Gates
But 72 hours before Beijing's big party, a report on Britain's private sector pensions attracted much less interest.
Actuaries Lane, Clark & Peacock (LC&P) reckon the net deficit of UK pension schemes of Britain's top FTSE-100 companies hit £41bn in mid-July 2008 - despite companies pumping £40bn into schemes to cut deficits in the last three years.
These pension funds, with assets of £350bn, have lost £33bn since January because of falling share prices - while liabilities have soared £50bn on revised forecasts of likely inflation over the next 30 years. Rising inflation levels mean funds pay out more to members.
For many of the 21m workers in the private sector, says Jerome Melcer at LC&P, pension prospects aren't bright: only 2.7m retain final salary pension plans, while other pension plans either have smaller employer contributions or none at all, and are more exposed to stock markets.
If final salary pensions are lost altogether for private sector workers, they will have to plan finances for retirement more carefully - by paying into defined contribution (DC) pensions and selecting managed funds to invest in shares, bonds and property, graded according to risk.
These pensions will pay less than final salary pensions - so additional savings may be needed to top them up.
Which brings us, full circle, back to Beijing.
Most long-term savings plans, either in a pension or perhaps in the tax shelter of an ISA (Individual Savings Account) to guard income and capital growth from income tax, will allocate some money to India and China, the fast-rising economies of Asia.
Both are mighty, unpredictable beasts.
China's market has plunged this year - but not enough to stop Gartmore's China Opportunities Fund showing a return of 96%, against a benchmark 44% for the Asia-Pacific region as a whole, excluding Japan, in three years to July 21.
Another star performer in 2007 was First State Asia Pacific Leaders, with 37% of its assets in Greater China and 8% in the Indian subcontinent. Brokers Killik and Co rate it the fifth-best performer out of 95 in its sector.
India is currently a white-knuckle ride too: Bombay's market fell nearly 50% in dollar terms, before bouncing in recent weeks.
India's interest rates have risen three times in two months, inflation is nearly 12% after big increases in food and energy prices, and profits at big firms like Tata, the new owner of Land Rover and Jaguar, are crashing.
Jeff Chowdhry, head of emerging equities at asset manager F&C, says: "Brokers and investment banks are almost universally bearish on their outlook for India, primarily because of rising inflation and interest rate worries.
"Our estimates tell us that some six billion dollars of foreign money has left the Indian market this year, but we expect outflows to slow considerably over the next few months."
But with Britain, America, and European stock markets mired in soaring energy costs, rising inflation and, of course, soaring pension deficits where the bills will eventually be paid by companies and shareholders, faster growth in future decades looks more likely in the lightly regulated economies of the East.
The tricky bit is when to get in. Asian markets are highly volatile, which strengthens the argument for regular investment in managed funds - perhaps £50 or £100 per month - to 'drip feed' money into the market and buy units at high and low prices.
Lump sum investment is much riskier, and vulnerable to the sort of crashes seen this year.
"We are cautious on India short-term, because inflation is harder for emerging markets to handle," says Mick Gilligan at brokers Killik & Co.
"In China, our favoured route is funds held in Hong Kong, for higher standards of corporate governance.
"Our current preference is for Emerging Market funds, with exposure to Latin America and Brazil, alongside major infrastructure projects in China. We like Utilico Emerging Markets, which holds companies where visibility of earnings is good and which is not as exposed to the end consumer."
Gigi Chan, highly rated manager at Threadneedle China Opportunities Fund, says there are a couple of key near-term risks to investing in China.
"The first is inflation - but relative to other economies, China is better-placed to deal with inflationary pressures given its policy flexibility.
"The second is that, along with other emerging markets, Chinese stocks are viewed to be riskier and therefore get sold off when risk appetite recedes on global concerns. We think this has been unjustified given the relative strength of the Chinese economy and resilience of corporate profitability."
Andrew Wilson, head of investments at asset manager Towry Law, handles minimum £100,000 portfolios for private clients.
"China was a crazy bubble in late-2007, with some share prices on 50 times company earnings which in many cases were unaudited," he says.
"This year, prices are more sensible. But we like clients to gain exposure to both China and India through Asian and Emerging Market funds to spread risk.
"Our portfolios typically have a 6-7% exposure to Asia, and 4% to Emerging Markets.
"Clients with a particular belief in India or China might buy a fund invested entirely in one or the other. But they might need to tuck it away for 20 years, and mustn't lie awake at night when it hits a sharp correction.
"No investment story is so strong that you can't go badly wrong by buying in at the wrong price."
Wilson still sees worrying signs in China: "Car makers have seen their inventory of unsold stock rise 50% in the last six months, suggesting slowing sales, whilst export growth is the slowest in five years, and average earnings are dropping, after allowing for inflation," he says.
When the athletes have gone home, small savers face tricky decisions about Beijing and the rise of the East.
INFORMATION: Towry Law (08457 889 933); Killik & Co (0207 337 0520).
POUNDNOTES
:: Mortgage rates may be falling, down to an average 6.90% on a two-year fix, but beware the sting in the tail, says Darren Cook at Moneyfacts.co.uk. Those crafty lenders are gradually jacking up fees, and a £100 increase in fees for a £150,000 repayment mortgage is equivalent to an additional 0.66% on the interest rate - so it's important to look closely at the true cost of a mortgage deal rather than the headline rate.
However Yorkshire Bank is waiving arrangement fees for any customers who remortgage during August to a range of fixed rate, offset, flexible and tracker mortgages, and the same offer goes for first-time buyers too.
"Instead of homeowners have to switch to Standard Variable Rate when their mortgage term expires with their existing lender, we will work with them to find the right mortgage deal," Yorkshire Bank's Gary Lumby says.
"There's a potential saving of £999."
Yorkshire Bank enquiries: 0845 602 6198 or visit your local branch.
:: Small investors have been snapping up shares in Lloyds TSB Bank, despite the City's guarded welcome for its latest set of figures.
Leading execution-only broker TD Waterhouse reckons Lloyds TSB represented over a third (34%) of its customers' top 10 buys this week, more than doubling sales of stock in the same bank.
Other popular shares with small investors in the Waterhouse league include (in descending order of popularity) BT, HBOS, Royal Bank of Scotland, Barclays Bank, Meldex International, Barratt Developments, Taylor Wimpey, Tanfield Group and BHP Billiton.
TD Waterhouse enquiries: 0845 607 6001.
:: Fraud on UK-issued credit cards abroad is booming, so International Currency Exchange (ICE) is advising holidaymakers to reduce the risk of cards being cloned or stolen abroad by opting for pre-paid cash cards instead.
Unlike credit cards, where fraudsters could run up thousands of pounds against the victim's credit limit, the worst damage a fraudster could do with a cash card is to steal the total amount pre-loaded, even if he got past the Chip and PIN high level security on the card.
ICE enquiries: www.iceplc.com or ICE Helpline: 0871 200 3442
:: Even careful savers are feeling the pinch: Abbey says that 26% of its customers who bought ISAs in the 2006/7 tax year have had to withdraw £579 each, therefore losing the tax shelter on the amount withdrawn which protects any income and capital gain on the investment.
Around a quarter of those withdrawing the money said their savings were needed to pay for an unanticipated bill, like an emergency home repair.
"Dipping into your ISA savings could prove costly in the long-term. With a Cash ISA allowance of £3,600 per tax year, any withdrawals made cannot be replaced," Abbey's Reza Attar-Zadeh says.
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
ICICI Bank UK www.icicibank.co.uk 7.20% (F) HiSAVE Fixed Rate 12 Month Bond £1,000 OM
FirstSave www.firstsave.co.uk 7.10% (F) Fixed Rate Bond One Year £1,000 OM
Heritable Bank 0845 607 1212 6.60% 60 Day Notice Issue 2 60 Days (B) £1,000 Yly
Whiteaway Laidlaw Bank Ltd 0161 833 5444 6.56% 60 Day Bonus 60 Days £1,000 Yly
Anglo Irish Bank 0845 455 2222 6.55% Seven Day Notice 2 Seven Days (B) £1 Yly
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494 999 5.49% for two years 90% £249 Yes
HSBC 0800 494 999 5.69% (FTB) for two years 90% £249 Yes
Britannia BS 0800 013 2322 5.89% for five years 75% £999 Yes
First Direct 0845 610 0100 5.95% for three years 80% £598
Market Harboro' BS 01858 412 250 5.95% for term 80% £195 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T- Operated by Telephone
*W- Operated by Internet
*H- Operated by Internet/Telephone
*S- Available only to those aged 50 or over
*R- Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
