Strong gains for China equity funds

Lipper data shows China equity funds have gained 50.67% in the first half of 2009.

China equity funds posted an average gain of 11.21% in June, bringing the gain in the first half of the year to 50.67%, according to data provider Lipper.

Fund managers remain bullish over the long-term prospects of China's economy, and consequently, its stock markets. Many fund managers with Asian portfolios have been shifting their focus to China since the latter part of the year, notably after the mainland announced its Rmb 4 trillion ($586 billion) stimulus plan in November.

"China's economic recovery is likely to be sustainable because of a widening range of investments," says Xav Feng, head of research for China and Taiwan at Lipper.

China's purchasing managers' index (PMI) rose to 53.2 in June from 53.1 in May, exceeding the boom-bust threshold of 50 for a fourth straight month. This helped drive a recovery of China's market, and the market consensus for China's gross domestic product grew much faster than the first quarter's 6.1% year-on-year expansion, Xav notes.

Lipper cites other positive developments for China. First-half exports fell 21.7% from a year earlier, a slight improvement from the first five months of the year. However, the new lending in June was Rmb 1.53 trillion ($225 billion), bringing total lending this year to Rmb 7.4 trillion ($1.1 trillion) and far exceeding the country's initial full-year target of disbursing Rmb 5 trillion ($735 billion) in loans. Total lending in the first half reached an unprecedented level, equivalent to one quarter of last year's GDP. China's broad money supply (M2) rallied 28.46% at the end of June from a year earlier, accelerating from May's 25.74% growth  rate. China's expansionary policies have resulted in fresh economic problems for the government, including a rise in the public's inflationary expectations and surging bad bank loans.

Qualified domestic institutional investor (QDII) funds rose by an average of 3.93% in June, while rising 31% on-average for the first five months of the year. The QDII programme allows institutional investors to move funds overseas as part of the liberalisation of China's capital account.

BOCOM Schroders Global Selection Fund and Harvest Oversea China Equity Fund were the best performing QDII funds, with returns of 6.62% and 5.78%, respectively, for June. For the first half of the year Fortis Haitong China Overseas Best Selection Fund (+51.91%) was the best performing QDII fund.

Qualified foreign institutional investor (QFII) funds posted an average gain of 12.45% in May and 62.79% for the first half of the year. Among the leaders were Lyxor China A Fund, Shenyin Wanguo-Aizawa China A-Share Fund No 2, and Morgan Stanley China A Share Fund Inc, with returns of 18.60%, 15.87%, and 15.78%, respectively.

Overall, for the first half of the year QFII A funds posted a return of 62.79%, significantly outperforming the domestic equity fund group. The total net assets of all QFII funds rose 11.57% to $9.94 billion in June, but most QFII funds didn't have obvious net buying.

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 government's efforts to open China's capital market and ease controls on the capital account, under which the yuan isn't fully convertible.

Average performance of fund groups in China in June:

  • Equity China +11.21%
  • Mixed Asset CNY Aggressive +9.74%
  • Target Maturity +8.90%
  • Mixed Asset CNY Flexible +8.71%
  • Mixed Asset CNY Balanced +7.58%
  • Mixed Asset Other Conservative +3.71%
  • Guaranteed +2.58%
  • Bond CNY +0.51%
  • Money Market CNY +0.13%

Top performing QFII funds in June:

  • Lyxor China A Fund +18.60 %
  • Shenyin Wanguo-Aizawa China A-Share Fund No 2 +15.87%
  • Morgan Stanley China A Share Fund +15.78%
  • Shenyin Wanguo-Aizawa China A-Share Fund No 3 +14.68%
  • Nikko Listed IDX Fund China A Share (Panda) CSI300 +13.71%
  • Nikko AM China A Stock Fund +10.88%
  • Nikko China A Share Fund 2 +10.88%
  • ABN AMRO China A Share Fund +10.00%
  • PCA China Dragon A Share Equity A-1 Class C +9.71%
  • APS China A Share +8.63%
  • Pru AM China Mainland Equity H Class  +8.20%
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