Volatile markets mean quick profits in China can easily turn into even faster losses. It is a long-term growth story so investment horizons have to match. Paul Burgin reports.
Anyone tracking Chinese indices has experienced a breathtaking ride during the past ten years. The broad MSCI China index is up just over 300% but hit 600% at its 2007 peak.
Mainland China A shares, unavailable to foreign investors, had a slightly less bumpy ride. Index returns on B shares held by foreigners have gained the least, up just over 150%, having peaked lower before dipping into negative territory during 2009.
The market slides in late 2007 and early 2008 took the edge off fund performance too. Even so, the IMA China/Greater China sector average is up 78.4% over the five years to the end of September. The best performers delivered considerably stronger results. GAM Star China Equity gained 172.1% over five years. Henderson Horizon China took second place. The weakest performer was Templeton China, delivering 47.7%.
China still a good long-term bet
Managers are hoping that rosier economic news will add to recent performance and halt substantial outflows. Net outflows over the last year topped £22m, although Aberdeen, JPMorgan, GAM and a handful of others bucked the trend.
Investors had been worried about slowing economic growth and what impact quantitative easing tapering might have on China’s export prowess. They need not have worried so much. Recent GDP figures beat expectations.
The Xinhua news agency reports that deputy central bank governor Yi Gang says growth should exceed 7.5% this year. That may be lower than the double-digit GDP numbers of recent years but is still strong when compared to developed markets.
“Recent indicators of economic activity such as industrial production, fixed asset investment, retail sales and exports continue to show signs of improvement, suggesting China’s economy is on a healthy track of recovery,” says Mike Shiao, co-manager of Invesco Perpetual HK & China, the sector’s best performer over one year.
Both the Chinese and the Hong Kong markets made solid gains during September, as positive data trickled in, led by consumer-related sectors such as IT, consumer discretionary and financials.
He is encouraged, too, by the opening of the Shanghai Pilot Free Trade Zone, which is another indication that China is opening its markets. November’s Plenary Session of the Chinese Communist Party should also set out a high-level roadmap for further reforms. Shiao expects reforms to cover social welfare, medical, public housing, food safety and environmental protection.
“We believe the economy will continue to show signs of gradual recovery over the fourth quarter of 2013. Meanwhile, we believe ongoing structural and economic reform should move China towards a more sustainable growth model,” he says.
The fund strategy remains focused on sustainable value. Stocks tend to have lower gearing and an emphasis on dividend payouts.
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