Indians lap up China-focused mutual funds

(This story originally appeared in on Sep 21, 2021)

Mumbai: Indian investors are pouring more money into China-centric mutual funds even as a regulatory crackdown by Beijing has knocked off over $1 trillion from the combined market capitalisation of tech giants like Alibaba and Tencent this year.

Though a niche category with only two fund houses — Edelweiss and Axis — offering these schemes, net inflows have continued despite negative returns this year. (see graphic)

Edelweiss Greater China Fund of Fund (FoF) has seen its assets under management (AUM) grow 62% in this year even as the net asset value (NAV) has fallen over 6% in the same period. Axis MF, which launched a China-focused FoF in February this year, has seen AUM grow four-fold even NAV fell by 14% this year. An FoF is a scheme that invests in another fund which in turn picks the assets.

“We are getting inflows consistently…smart investors are adding more, a lot of people were waiting on the fence to invest in China. July was one of the best months for inflows in the Greater China fund. Even August and this month has seen good flows, said Niranjan Avasthi, head of products, marketing and digital at Edelweiss MF.

Axis MF too is seeing a steady pick-up in interest and its fund has recorded net inflows since inception. “The biggest category in the fund are mature investors, who have the understanding about what is the role of allocation to China in their portfolios. Informed investors are also aware that though the China market has given decent returns, it has been highly volatile historically,” said Ashwin Patni, head of products and alternatives at Axis MF.

The Edelweiss fund has about 20% exposure to the technology sector, which is facing the brunt of the regulatory crackdown. “China wants to cut down monopolies, chart clear paths along with some social aspects. The China story is shifting from export-driven economy to domestic-driven…mainland China market is also getting added to emerging market indices, because of which global inflows will increase further,” Avasthi said, adding that the pain in the tech sector should smoothen out in a year.

“China has a very high-growth environment. But it is also a market that has a very heavy trader component, that is why we see very big ups and downs from time-to-time. So, investors who come without this context can be put-off,” Patni said. Currently, global funds are a small space, China is even smaller. However, investment in international markets will increase gradually and can reach 10% of equity allocation in a few years, according to Patni.

A Goldman Sachs report released last week also quoted economists saying that China is still investable as regulations aren’t likely to structurally impair companies’ earnings.

The Edelweiss fund, launched in 2009, has posted 20% CAGR return in the last 5 years, which has helped attract investors looking for better returns in the last 1-and- half years. The AUM of the Edelweiss fund has jumped from about Rs 152 crore at the start of the pandemic to over Rs 1,800 crore this month.

On Friday, Sachin Bansal backed-Navi Mutual Fund too has filed for a China-focused FoF with markets regulator Sebi, which would make it the third such MF scheme in India.

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