Trustnet Magazine Issue 15 February 2016 | Página 16

INVESTMENT STRATEGY

CHINA

A FALLING KNIFE

14

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300%

IA China/Greater China (316.05%)
IA Global Emerging Markets (174.02%)
IA Asia Pacific Excluding Japan (140.92%)

200%
100%
0%

Feb 14

Feb 12

Feb 10

Feb 08

-100%
Feb 06

Looking at the short- and medium
term performance figures of the
IA China/Greater China sector,
you can see why investors are
nervous. Over one and five
years, the 36 constituent funds
have produced average losses of
13.31 per cent and 1.51 per cent
respectively. Not one fund in the
sector has managed to produce a
positive return over one year, with
the best – Matthews Asia China

400%

Feb 04

NERVOUS

Feb 02

button – global emerging markets
and Asia Pacific funds witnessed
huge outflows last year.
Given the events of 2015 and
what has already happened
this year, it would be fair to say
sentiment towards China is
not exactly positive right now.
However, are investors missing a
trick by steering clear of the region
and does the current volatility
represent a genuine buying
opportunity?

Feb 00

I

nvestors who had their fingers
crossed that 2016 would bring a
turnaround in fortunes for China
only had to wait for a couple of
days to see their hopes dashed, as
global stock markets plunged again
following the forced suspension of
trading in Shanghai.
This follows the market crash in
the second half of 2015 owing to the
destabilising effects of the slowdown
in China’s economy, leading many
retail investors to press the panic

PERFORMANCE OF SECTORS OVER 20YRS

500%

Feb 98

The Chinese market has veered from one crisis to another over the past six months, but
does its fragility necessarily make it a no-go area for investors? Adam Lewis finds out

GIVEN THE EVENTS OF
2015 AND WHAT HAS
ALREADY HAPPENED
THIS YEAR, IT WOULD BE
FAIR TO SAY SENTIMENT
TOWARDS CHINA IS
NOT EXACTLY POSITIVE
RIGHT NOW

Feb 96

BIG TROUBLE IN
BRITTLE CHINA

Dividend – topping the sector
with a fall of 1.22 per cent.
However, as both Mark Dampier,
head of research at Hargreaves
Lansdown, and James Calder, head
of research at City Asset
Management, point out, you do
not invest in China for the short
term. Instead the country is, and
always has been, held up as the
classic long-term investment. You
ride out the volatility in the hope
and expectation that in the longrun you will be rewarded for the
risk taken and a look at
performance over 10 years and
beyond bears this out.
The average fund in the IA China/
Greater China sector has produced
a return of 121.18 per cent over
the past decade, jumping to 316.05
per cent over 20 years. Over the
same time periods the average
fund in the Global Emerging
Markets sector is up 40.25 per cent
and 174. 02 per cent, while the
mean returns in the Asia Pacific ex
Japan sector are 94.05 pe r cent and
140. 92 per cent.

“Investors never seem to be worried
about catching a falling knife when
the market is up 150 per cent,” says
Calder. “When it comes to investing
in China, you have to accept that
there will be volatility, but if you
take the view the Chinese market
is not broken, on a five-year view it
looks like a fantastic opportunity
right now.”
“You do not invest in China if
your time horizon is any less than
10 years,” added Dampier. “As such,
while it is not in my investment
remit right now, the Chinese
market may end up mirroring
Japan in the 1980s, which was the
best of all time.”
Given this timeframe, both
Dampier and Calder maintain that
China still has a place in pension
portfolios, particularly for younger
investors who still have some way
to go until retirement.
So just what has been going on
in China? Richard Jeffrey, chief

Source: FE Analytics

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