What are we looking for?
Last summer, Chinese equity funds were underwater and investors were concerned that the country's slowing economy would lead to a "hard landing." How much have these funds come back to life in the past year?
We examined the one-year returns of Greater China equity funds to Sept. 30. U.S. dollar, segregated and duplicate versions of funds were excluded.
What did we find?
A wide range of gains for the funds in the category.
The Renaissance China Plus was the top performer in the screen with an annualized gain of 40.3 per cent in the period. The Pro FTSE RAFI Hong Kong China Index-A fund rounded out the list, up 10 per cent in the period.
Growth is stabilizing in Northern Asia but there are still affordable investment opportunities, said Russ Koesterich, the U.S.-based chief investment strategist for BlackRock Inc. and chief global strategist for iShares.
In particular, he said Chinese small-cap companies look like attractive investments right now because they offer exposure to Chinese consumer spending and the rise of the country's middle class.
"We do think you'll see a continuing re-balance toward consumption in China," he said. "China's going to have to shift its economy away from exports and away from investment."
And that would mean an increasing focus on homegrown Chinese companies that make things like personal care products, or other items that a new middle-class consumer would start to buy.
The iShares China All-Cap Index Common ETF is in the middle of the pack in this screen with a 21.2 per cent gain in the period, but it's one of only three funds that managed a positive performance in the three-year term.
The top-performing Renaissance China Plus Fund had just over 16 per cent of its portfolio weighted toward consumer discretionary, the third-largest sector after information technology and financials.
But BlackRock's Mr. Koesterich says he would be cautious about investing in Chinese banks.
He also thinks that any move by the U.S. Federal Reserve to taper its stimulus will make it more difficult for some emerging economies to attract capital, especially those with large current account deficits.
But the outlook for China is positive. "In the case of China you still have a closed capital system," Mr. Koesterich said, making it more resilient to Fed tapering than India, Turkey or Indonesia.
GREATER CHINA EQUITY FUNDS - 1 YEAR TO SEPT. 30
|% return to Sept. 30||Calendar year % return|
|Renaissance China Plus||40.3%||-0.9%||12.8%||8.5%||32.8%||-37.8%||3.4%||71.3%||3.27||105.0|
|BMO China Equity Index ETF||ZCH-T||34.8%||-0.5%||9.2%||-26.4%||0.74||11.7|
|Manulife China Class A||23.3%||1.0%||5.6%||18.9%||-22.3%||4.5%||32.7%||3.15||41.3|
|BMO Greater China Class||22.5%||-0.2%||6.8%||16.8%||-24.6%||5.1%||45.8%||2.81||72.7|
|iShares China All-Cap Index Common ETF||CHI-T||21.2%||0.2%||22.1%||-19.1%||0.70||7.6|
|Fidelity China B||19.4%||-2.2%||7.7%||14.0%||-19.3%||0.9%||44.7%||2.44||40.1|
|HSBC Chinese Equity-I||16.8%||-1.3%||5.0%||16.5%||-19.3%||-6.2%||36.9%||2.69||195.6|
|iShares China Index ETF||XCH-T||14.4%||-2.7%||16.1%||-15.9%||0.86||26.2|
|Investors Greater China A||13.0%||-4.1%||1.2%||10.6%||-17.8%||-2.0%||23.6%||2.75||10.0|
|AGF China Focus Class||12.4%||-2.2%||4.2%||7.4%||17.0%||-20.7%||1.3%||27.7%||3.15||138.2|
|Pro FTSE RAFI Hong Kong China Index-A||10.0%||1.4%||8.0%||21.2%||-19.2%||19.1%||31.9%||2.30||5.0|
|Hang Seng Total Return Index||14.6%||0.8%||4.2%||4.5%||20.4%||-17.9%||-0.4%||29.0%|
© 2007 The Globe and Mail. All rights reserved.
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