China will be celebrating 100 years of the Communist Party of China (CCP) next week. But do Chinese investors have anything to celebrate?
Next week, China will mark the centenary of the Communist Party of China (CCP). Founded 100 years ago in Shanghai, the party has more than 90 million members and has ruled the People’s Republic of China since 1949.
Events will take place across the country, with the main one in Beijing on 1 July. But do Chinese equity investors have anything to celebrate?
US beats China when it comes to investment returns
“Over the past decade, Chinese equity returns have been overshadowed by those from the US, with the S&P500 outperforming the MSCI China index in seven of the last ten years,” Commented Darius McDermott, managing director of FundCalibre.
“Cumulatively, the S&P 500 has posted gains of 339% in that time – more than double the 145% returns of the MSCI China.
“And while 2020 turned out to be a good year for Chinese equities (the MSCI China returned 25.5%), this year they are struggling with the index down 3.2%.
“But while the average US equity fund has struggled to match the S&P 500 in this time, both the average Chinese equity investment trust and the average Chinese equity fund has managed to outpace the MSCI China index.”
So what does the future hold in store?
Martin Lau, co-manager of FSSA Greater China Growth, believes we will see more balanced market growth through the remainder of this year. “As the economy recovers, shares in a wider range of sectors will become more attractive,” he said. Last year, just a handful of companies accounted for the majority of the returns. We have already started to see signs of change, hence why we expect this year to be different from the last.”
“China’s stock market, like that of the US, is dominated by big tech companies, which led market recoveries last year,” continued Darius.
“Alibaba, Tencent, Meituan Dianping and Xiaomi account for 30% of the MSCI China^, while Facebook, Apple, Amazon, Google (under parent company Alphabet) and Microsoft account for 20% of the S&P500^^.”
Three reasons to consider investing in China
- Manufacturing & technology
A key aim of President Xi’s latest and previous Five-Year Plans has been to upgrade the manufacturing industry. Some sectors have started to grow quite rapidly and this, coupled with a competitive and well-educated workforce, should help manufacturing champions continue to advance their technology prowess and gain global market share.2. The consumer
The Chinese consumer has long been touted as an exciting structural trend for investors and this is still the case today. As the economy develops and incomes rise, consumer spending on domestic brands, education and tourism should all increase significantly.3. Climate change
At the UN General Assembly in September 2020 President Xi Jinping pledged that the country would become net zero by 2060. This was a surprise move that has been hailed as a significant step forward in the global effort to address the Climate Crisis, given that China is responsible for around 30% of global emissions.
For Chinese equity products:
For those considering investing in China, here are four Elite Rated Chinese equity products:
1. Fidelity China Special Situations
This trust has a bias towards smaller and medium-sized companies and can also invest in unlisted firms. It has returned 386% over the past ten years.
2. FSSA Greater China Growth
This fund invests in well-managed businesses with good corporate governance across Hong Kong, China and Taiwan. It has returned 237% over the last decade.
3. Invesco China Equity
This fund has a bias towards medium-sized firms and has recently increased its exposure to the Chinese A Share market. Over the last decade it has returned 200%.
4. JPM China Growth & Income Trust
This trust invests in companies quoted on the stock exchanges of Hong Kong, China and Taiwan, including A shares listed in Shenzhen and Shanghai. In the last ten years it has returned 367%.
