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Investors bet on end to China market underperformance
Investment funds can suddenly boast positive five-year performances in China, while fund managers are piling into the market afresh.
China, where investors have for many years been unable to capture the gains of booming growth, has become the favourite country bet for emerging market investors eyeing cheap shares and an improving economy.
China has been the beneficiary of improving appetite for risk among global investors in 2013. Signs that the Chinese economy has averted the ‘hard landing’ that deterred investors last year have seen fund managers pour more money into the country, seeking out cheap bargains, according to a survey from Bank of America Merrill Lynch.
Chinese equity funds have seen inflows for the past 22 weeks, according to the Bank, while China is the favourite market for both global emerging market investors and those focused on the Asia Pacific. The appointment of a new generation of leaders at the end of 2012 has also calmed investors.
Middling investment kingdom
Compared with other global fund sectors, the kingdom has only produced middling investment returns over the past five years.
China investors struggled in the aftermath of the financial crisis. Despite rallying over the past two months the Shanghai Composite index is still down 60% from its October 2007 pre-crisis peak.
But fund returns have improved. The latest monthly update of Citywire fund performance tables shows all funds in the Greater China sector with a five-year record now have positive returns, led by the First State Greater China Growth fund which has returned an impressive 86% since January 2008.
Greater China funds' total returns: Click to enlarge
Funds invested in greater China – grouped as mainland China, Hong Kong and Taiwan – have tended to outperform those targeting mainland stocks where access is difficult and the market more volatile. Investors often prefer the governance and accounting standards of companies listed outside of the mainland.
China funds' total returns Click to enlarge
However, during that same five-year period, funds targeting Asia Pacific (excluding Japan) have served investors even better, returning an average of 46% (compared to 40% for greater China, 26% for China). Elsewhere emerging economies and Latin America – particularly Brazil – have proven more lucrative, even as these economies have not matched China’s blistering growth pace.
Investors smart enough to invest in the handful of specialist Greater China funds available a decade ago have been richly rewarded. The Henderson China Opportunities fund has returned 447% during that time, while Baring Hong Kong China has returned 445%. These returns are still dwarfed by funds venturing into Latin America in the early noughties, with the Invesco Perpetual Latin American fund returning 883% (48% over five years).
Fidelity China Special Situations recovering
The situation with investment trusts investing in the region is also interesting.
Over five years to 7 February only three of the six investment trusts in the Asia Pacific country specialists sector have generated a positive return for shareholders. By far the worst is India Capital Growth , managed by Ocean Dial Asset Management, which has lost 60% of investors' money. VinaCapital Vietnam Opportunities fund underlines the risk of investing in a single emerging market with a 39% shareholder loss.
Howeever, there is a huge range of returns in this small sector. Leading the pack is Aberdeen New Thai , also managed by Hugh Young, which has delivered 229% growth over five years. It is top over one year too, with growth of 70%.
By contrast the JPMorgan Chinese investment trust's share price has risen only 44% over five years. It looks better over one year where the recent rally is shown to full effect with a near 20% gain.
Just behind it on 17% is the much criticised Fidelity China Special Situations investment trust , managed by former star manager Anthony Bolton (pictured). After a bad start his investment trust is doing much better but has more to do. From launch in April 2010 until the end of December it had lost shareholders 14% of their money.
In the broader Asia Pacific excluding Japan investment trust sector Aberdeen again has the lead with its Asian Smaller investment trust having grown shareholders' money by 263% over five years.
More about this:
Look up the funds
- Henderson China Opportunities A Acc
- Baring Hong Kong China A GBP Inc
- Invesco Perpetual Latin American Acc
- Aberdeen Global - Chinese Equity D2 GBP
- First State Greater China Growth A GBP Acc
Look up the investment trusts
- India Capital Growth (Ordinary Share)
- VinaCapital Vietnam Opp Fund (Ordinary Share)
- Aberdeen New Thai (Ordinary Share)
- JPMorgan Chinese (Ordinary Share)
- Fidelity China Special (Ordinary Share)
- Aberdeen Asian Smaller (Ordinary Share)
Look up the fund managers
More from us
- Fund total returns over 5 years
- Citywire Selection
- Greater China funds performance over five years
- Investment trusts: Country Specialists - Asia Pacific
- Investment trusts: Asia Pacific excluding Japan
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by Michelle McGagh on Dec 09, 2013 at 05:01