Is it time to invest in greater China FoFs?

Is it time to invest in greater China FoFs?

Mutual fund advisors and fund managers see a huge dip in Asia-pacific markets, including China, as a great opportunity to invest in funds focused on Chinese markets. According to these experts, investors can invest some money in the beaten down Chinese stocks for better returns. At the moment, there are two major FoFs investing in this space- Edelweiss Greater China Equity Off-shore Fund and Axis Greater China Equity FoF.

The recent heightened regulatory regime in China in the areas of education and internet has induced some volatility in the underlying fund performances.

Fund of funds focused on Chinese markets have seen a big fall too. Funds like Axis Greater China Equity FoF and Edelweiss Greater China Equity Off-shore Fund have fallen by 3.75% and 3.84% in the last one week. In one month the funds have fallen by 7.93 and 9.99% respectively.

Mainland Chinese stocks saw losses with the Shanghai composite slipping 2% to 3,446.98 while the Shenzhen component dropped 2.335% to 14,350.65 on Tuesday.

Fund managers at Edelweiss believe that there are some risks and challenges, but also this is creating opportunities. Short-term volatility has opened long-term valuation opportunities. Mutual fund distributors believe that these FoFs can be a good way to tap into the Chinese market for tactical allocation at this time.

“With these regulatory reforms the Chinese government does not want to dismantle their leading companies, but they do want to ensure that the next cohort of innovators has space to flourish. Hence if one takes a closer look, there are some risks out there, and there are some challenges, but also this is creating opportunities for investors who missed out on taking exposure in the China market,” says Niranjan Avasthi, Head – Product, Marketing & Digital Business, Edelweiss AMC.

“Greater China commands 50% plus weight in the MSCI EM Index and as per estimates Chinese economy is expected to be the largest economy overtaking the US in this decade. Looking at the growth prospects, investors looking for global exposure in a stronger emerging economy can look at greater China funds. These funds can be a part of an investors satellite portfolio with an allocation up to 5 to 10%,” says Rushabh Desai, an Amfi-registered mutual fund distributor, based in Mumbai.

However, this opportunity might not be for everyone. Investors who have an aggressive risk profile and can take the risk on some of their investments for higher returns should go for it. However, Desai believes that in a strictly goal-based portfolio, tactical bets can be avoided.

“Geopolitical risks like US-China trade war, government regulatory risk (which China is facing right now), fund’s sectoral concentration risk and other market related risks can make these funds very cyclical. Thus, they are not meant for SIP investors,” says Desai.

The transitory volatility caused by Chinese and regulatory actions has brought in tremendous upside opportunity for lump sum investors looking to take tactical bets at this point in time keeping a 5 to 7-year time horizon. “Investors can look at investing in Edelweiss Greater China OffShore FoF which invests in a well-proven strategy of J P Morgan Greater China Fund backed by experienced team members,” says Rushabh Desai.

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