February 2024

This month marks the start of the Chinese Year of the Dragon, which traditionally symbolises strength, vitality and energy. This seems at odds with the behaviour of the Chinese stockmarket over recent years, with the MSCI China index having fallen by more than 50 percentage points since the beginning of 2020, and by 30.9% over…

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This month marks the start of the Chinese Year of the Dragon, which traditionally symbolises strength, vitality and energy.

This seems at odds with the behaviour of the Chinese stockmarket over recent years, with the MSCI China index having fallen by more than 50 percentage points since the beginning of 2020, and by 30.9% over the past year alone, according to FE Fundinfo data.

The pressures weighing on China’s economy and stockmarket are discussed in this month’s cover story, where we look at whether investors are being compensated for the risks in light of depressed valuations. And, in this month’s ‘A letter from’ on page 8, Fund Selector Asia’s regional editor Rupert Walker provides on-the-ground views on Chinese  quities from Hong Kong.

Our ‘Head to head’ on page 42 also debates the pros and cons of investing in China, with Liontrust’s James Klempster arguing that a poor year for China will still see higher rates of growth than most of the developed world, while Matthews Asia’s Andrew Mattock warns the Chinese government must act soon to avoid a Japanese-style ‘lost decade’.

Our contributors to this month’s ‘Four views’ on page 14 take a broader view on emerging markets, though China remains at the forefront of the discussion given it accounts for 23.8% of the MSCI Emerging Markets index.

Interestingly, a number of fund selectors who are positive on China do not hold exposure to China-specific funds. They instead gain exposure through global emerging market or Asia-Pacific portfolios, with Downing’s Simon Evan-Cook explaining on page 29 that he trusts his managers here to “manage [his] Chinese exposure sensibly”.

Liontrust’s John Husselbee adopts a similar approach, adding: “Until there is a sufficient number of fund managers offering Asian ex China, or EM ex China funds, you have little choice but to just select Asia and EM funds.”

FE data shows that, while the average IA China/Greater China fund has fallen by 51.3% over three years, the average IA Global Emerging Markets fund has lost just 16.7%. In contrast, the average IA India/Indian Subcontinent fund has gained 45.5% over the same time frame.

Should fund selectors rely on GEM fund managers to toggle their regional exposure through their expertise, or should they allocate to country-specific funds as alpha kickers? I suspect those who have invested in India funds, and those who have invested in China-specific funds in recent years, may have differing views on the subject.

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