Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Xav Feng, Taipei-based head of research for China and Taiwan at Thomson Reuters Lipper, sums up the performance of China equity funds last year by saying ôthe revelry is overö.
The Shanghai Composite Shares index shed 65.39% of its value in 2008, coming in at the bottom of all Asian markets, which posted an average loss of 40% last year.
Investors who bought China equity funds at the peak of the stock market may be hurting, but many long-time investors in the mainland are still sitting on profits. On average, China equity funds are up 127.27% over the past three years and 118.65% over the past five years.
Chinese bond funds were the best performers in the mainland last year, posting an average gain of 6.77%. Money market funds gained an average 3.47%. All other fund groups posted losses.
Qualified domestic institutional investor (QDII) funds rose an average of 6.49% in December, thanks to the slight rebound in global markets. They lost an average of 47.67% for the year, however.
The QDII scheme experienced a considerable setback in September. Hua An International Balanced Fund, the country's first QDII product, held a large amount of structured notes guaranteed by Lehman Brothers Holdings. Since Hua An could not make a proper evaluation of the fund's assets after Lehman Brothers filed for bankruptcy protection, it temporarily halted redemptions and has decided to assume responsibility for payment of the principal on the QDII funds and to continue every effort to avoid liquidation before the end of the fund's five-year term in 2011.
Despite the generally poor showing of QDII funds last year, Xav notes that several QDII fund launches are being prepared for 2009. The QDII programme allows institutional investors to move funds overseas as part of the liberalisation of China's capital account.
Qualified foreign institutional investor (QFII) funds posted an average gain of 0.90% in December, but lost an average of 65% for the year.
The China Securities Regulatory Commission (CSRC) quickened the speed of QFII approval towards the end of last year. UOB Asset Management gained a QFII license in November, bringing the number of foreign institutions with QFII qualification in 2008 to 20. The total number of QFIIs funds reached 72.
Of the six funds posting month-end assets under management by the time Thomson Reuters Lipper prepared its year-end data, most slightly increased their total net assets. The initial total net assets of all QFII funds rose 1.31% to $6.346 billion in December.
China launched the QFII programme in mid-2003 to allow approved foreign institutions to trade A-shares and bonds on the Shanghai and Shenzhen exchanges. The programme was part of the governmentÆs efforts to open ChinaÆs capital market and ease controls on the capital account, under which the yuan isnÆt fully convertible.
Looking ahead, Xav notes that economic downside risk is increasing in China and the government is keen to use domestic consumption to support economic growth against the global downturn and financial turmoil.
Average performance of fund groups in China in 2009:
Bond CNY +6.77%
Money Market CNY +3.47%
Mixed Asset Other Conservative -14.93%
Target Maturity -40.84%
Mixed Asset CNY Balanced -43.34%
Mixed Asset CNY Flexible -47.95%
Mixed Asset CNY Aggressive -48.53%
Equity China -53.14%
Top performing QFII funds in December:
ING China A Share Fund P Class +6.21%
Hang Seng China A-Share Focus A1 +4.31%
APS China A Share +0.69%
JF China Pioneer A-Share -0.93%
W.I.S.E. - CSI 300 China Tracker -1.48%
ABN AMRO China A Share Fund -1.81%
iShares FTSE/Xinhua A50 China Tracker -1.90%
Morgan Stanley China A Share Fund Inc -4.20%
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