Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a658447

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.

 
Investors bet on end to China market underperformance

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). 

Citywire Selection, our pick of the best investment funds, tips  Martin Lau’s First State Greater China Growth fund .

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.

8 comments so far. Why not have your say?

Pat

Feb 13, 2013 at 09:50

Useful analysis, thanks

report this

Michael Rosenberg

Feb 13, 2013 at 15:02

So in the space of three months china is the darling of the market. Yet in those far off days of three months ago the consensus of the so called experts was the opposite. Plus ca change!

report this

gravedigger

Feb 13, 2013 at 15:41

The lack of corporate governance, endemic corruption, and fraud mean that nothing has really changed in China. Some people are making money, but it is unlikely to be western investors.

report this

Hole Puncher

Feb 13, 2013 at 16:07

Agree with gravedigger.

report this

Rufus Dogg

Feb 13, 2013 at 19:07

Stay the F*CK out of China. If you are invested in China, get out now.

The fact that there is a lot of money sloshing around cannot disguise the fact that companies keep multiple versions of their accounts. It is no secret, there is a culture of

"we'd be mad not to!"

"everyone does it!"

etc.

If you cannot trust the figures that get reported, you cannot trust the company. Buy goods from China, enjoy the food, etc. But stay out of China.

Culture of lying in accounts is utterly endemic.

It will all end in tears - no question.

report this

Michael Rosenberg

Feb 13, 2013 at 19:20

Yes that's true about many Chinese companies but the same applies to many western companies who play creative accounting despite all the corporate governance protections that the system demands.

Tarring all Chinese companies with the same brush is not the way forward. Do your homework and know the people. Give it five years and Chinese companies will dominate investment portfolios and will be the aggressive. M and A players in our markets. Ignore then at your peril

report this

Rufus Dogg

Feb 13, 2013 at 19:51

This crazy attitude will not serve anyone well.

It does not matter if you make 500% returns over the next five years, but then lose 100% in 15 years. The bit that matters is the 100% loss.

As MR says (above) there are many Western companies that "push the boundaries" of reliable reporting.

In simple terms, everyone tells lies. The full rainbow, from "spin" to fraud. Because companies want to look good. And keep as much money as possible.

We have a huge volume of laws, regulation, and established practices and procedures. Ones that are enforced. Laws and regs to prevent corporations dragging *everything* down in an economic Armageddon.

A lot of our current legislation in the West has its roots in the Great Depression. We're getting another range of safeguards as a result of the current financial crisis.

China does not have a long enough history of capitalism to understand the consequences of the current Chinese model.

There is no point in NOT tarring all Chinese companies with the same brush, because in the crash-analysis that is exactly what investors will do.

At the moment there is too much success and too much momentum for anyone to take the built-in rot seriously. Central gvt. calls the tune and all of China dances beautifully.

But markets always lead to crunch points. Always. And the documentation of finance is focused on the numbers.

Which we all know are false - openly, obviously and frequently stated to be false.

When investors seek reassurance, there will be none.

Castles built on sand ...

And to quote an oft repeated phrase from the Dothraki in Game of Thrones

"It is known."

report this

Alexander MOFFATT

Feb 16, 2013 at 21:47

Am relying on Bolton to top up my SIPP- so can do drawdown, Desperately hope he's right1

A

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

More about this:

Look up the funds

  • Henderson China Opportunities A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Baring Hong Kong China A GBP Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Invesco Perpetual Latin American Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberdeen Global - Chinese Equity D2 GBP
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • First State Greater China Growth A GBP Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • India Capital Growth (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • VinaCapital Vietnam Opp Fund (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberdeen New Thai (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • JPMorgan Chinese (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Fidelity China Special (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberdeen Asian Smaller (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Hugh Young
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Martin Lau
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Anthony Bolton
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Neil Woodford sells the only bank he trusted

by Dylan Lobo on Sep 01, 2014 at 10:59

Sorry, this link is not
quite ready yet