Investing in China-Focused Funds: What Should Investors Evaluate?
While financials contributed the most to respective total returns of our China-focused funds, energy was the primary drag on them in the one-year period ended June 10, 2015.
In the past one year, China Mobile (CHL), Tencent Holdings, and the H shares of China Construction Bank Corporation have been the three top holdings of the Clough China Fund Class I (CHNIX).
Total returns for the Fidelity China Region Fund Class C (FHKCX) for the past year ended June 10, 2015, stood at 28.5%, the highest among the four funds in this review.
The top three sectors of CHNIX in terms of portfolio composition are financials, industrials, and consumer discretionary, which make up 35.5%, 14.4%, and 13.7% of the portfolio, respectively.
Two of our China-focused funds, the Fidelity China Region Fund Class C (FHKCX) and the John Hancock Greater China Opportunities Fund Class A (JCOAX), benchmark their performance to the MSCI Golden Dragon Index.
The Fidelity China Region Fund Class C (FHKCX) stands out as the clear winner in risk-adjusted performance. It continues to dominate its peers with a Sharpe ratio of 3.3.
Fund performance for the three-months ended June 10 saw FHKCX outdoing its peers with returns of 22.1%. MCHFX was a distant second with 18.7%, and JCOAX lagged the pack with 13.8%.
After several months of instability, factor PMIs for China are looking stable. Chinese exports have picked up, and the real estate market seems to be on strong footing.
Emerging market equities witnessed investment outflows of $107 million in the week of June 26. These equities have seen net positive flows in three out of the past five weeks.
Currently, emerging market equities are trading at 12.68x on a one-year forward earnings basis. Valuations rose by 0.83% in the week ending June 26.
Interest in US equities has slowed due to expectations that interest rates will rise because of the overall nominal growth of corporations. Investors believe the EU will outperform US equities for the next two to three years.
Emerging market equities Emerging market equities (EEM) advanced by 0.62% in the week ending June 26, 2015. They were pressured mainly by heavy selling of Chinese stocks, but partially offset by strong buying…
The EU’s recovery from the 2007 crisis has been slower than the recoveries in the US and emerging markets.
EU equities outperformed other major markets in 2015 thanks to the quantitative easing measures announced by the European Central Bank, a weaker currency, and rising exports.
In the week of June 26, US equities witnessed net investment outflows for the 14th straight week. The week’s total outflow stood at $3.0 billion—higher than the previous week’s $2.2 billion.
With the announcement of reforms by major emerging economies and quantitative easing by the European Central Bank, investors are betting big on equities outside the US, especially on emerging markets.
The US market fell by 0.40% during the week ending June 26. The decline was mainly due to contraction of the US economy in 1Q15, lowering manufacturing activity.
Emerging market equities witnessed investment flows of $100 million in the week ending June 19, 2015. These equities have seen net positive flows in three out of the past five weeks.
Asset managers that could benefit from the strong performance of emerging market equities include BlackRock (BLK), Fidelity Investments, and Franklin Resources (BEN), among others.
In the past, major emerging market equities including China and India have risen as a result of reforms intended to help growth.
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