With significant stimulus by the Chinese Communist Party (CCP) to stabilise the country’s ailing property market, stabilise banks and support local government, the Chinese stock market has seen its biggest rally in years.
After jumping as much as 35% in September, Chinese equities have since cooled despite Saturday’s eagerly anticipated fiscal announcement. Investors who acted quickly on the initial news benefited from short-term volatility, however the long-term investment forecast remains uncertain. We canvas the views of two experts for their longer-term outlook on China, and on single-country funds investing in other compelling markets.
Darius McDermott, managing director at FundCalibre, comments:
‘Sometimes there is a major change in a specific country and investors need a way to immediately target that exposure. The CCP’s recent off-the-book intervention into its property market is a prime example of when single-country funds can be beneficial. The stimulus’ impact is hoped to cascade through the economy, boosting both consumer and stock market confidence.
‘Of course, risks remain, including the ongoing trade tensions with the US. However, the CCP’s near-total control over its economy positions it well to implement bold measures. If there is a government capable of making this work, it’s China’s.’
The pros and cons of single-country funds
McDermott cautions that while single-country funds can offer high returns, they are not for the risk-averse:
‘Their limited diversification can result in underperformance when a nation’s economy falters, regardless of how skilled a fund manager is at picking stocks. The example of Russia underscores how unforeseen events can severely impact such funds.
‘However, for hands-on investors who are able to stay on top of the political and economic landscape of the country they’re targeting, these funds can be powerful drivers of alpha. Single-country funds provide a focused approach, allowing investors with strong convictions about a nation’s prospects to benefit from concentrated exposure.’
Fund manager insights on the top single-country funds
We asked trust pickers at FundCalibre and the MIGO Opportunities Trust to highlight the countries currently offering the most compelling cases for single-country funds. Here are their top picks:
China
McDermott highlights China ahead of the government’s upcoming briefing on fiscal policy:
‘If you believe the fiscal event on Saturday is a further positive catalyst for the Chinese stock market, Fidelity China Special Situations offers an attractive entry point into this market at a 15% discount.
‘The trust benefits from having the highly experienced Dale Nicholls at the helm, backed up the breadth and depth of Fidelity’s vast resources in the region at his disposal. The manager’s ability to invest in unlisted assets, such as ByteDance (owner of TikTok), sets the fund apart from its peers. The 20% leverage, while punchy, is understandable given the undervaluation of Chinese stocks in recent years.’
India
McDermott also sees strong potential in India:
‘India is another attractive option, with tremendous growth potential and great demographics. However, it is also a very expensive market, and it has seen big stock market falls in the past. A single-country fund allows investors to time their entry and exit points to optimise returns, or to hold for the long term, riding out the volatility while benefiting from India’s long-term growth trajectory.
‘The Ashoka India Equity Investment Trust and UTI India Dynamic Equity are standout funds in this space, with teams that conduct thorough on-the-ground research to identify companies with high potential for substantial market outperformance.’
Georgia
Charlotte Cuthbertson, co-manager of MIGO Opportunities Trust, highlights Georgia as a frontier market with promising prospects:
‘Georgia is experiencing remarkable economic success. Our exposure to this market comes through Georgia Capital (CGEO). Located at the crossroads of Western Asia and Eastern Europe, Georgia has become a conduit between the region and Western Europe. As such, the country has attracted significant investment. As Georgia’s wealth has increased, the population has begun engaging in activities such as private education, private healthcare, and property insurance – all areas where CGEO holds significant investments.
‘The recent passage of a controversial “foreign agents” law by the Georgian government, which sparked widespread protests, has led to some tumultuous share price movements in recent weeks.
‘Despite local economic growth being at a classic sweet spot, recent uncertainty has driven CGEO shares fall to a 60% discount. We are hopeful the elections later in the year will provide some clarity and help stabilise the share price. The portfolio is generating plenty of cash flow, much of which will be handed back to shareholders during the next couple of years.’
Vietnam
Cuthbertson also sees Vietnam as a compelling emerging market:
‘Vietnam represents another compelling emerging market opportunity. The country boasts a burgeoning middle class and ongoing urbanisation, fuelling robust economic growth. Additionally, Vietnam benefits from the ongoing shift in global manufacturing away from China, attracting multinational companies seeking supply chain diversification.
‘Despite its strong fundamentals, the Vietnamese market remains undervalued compared to its regional peers. However, it is also known for its volatility due to the prevalence of short-term retail investors, which can cause share prices to deviate from underlying fundamentals.
‘This is evident in our current holdings, VinaCapital Vietnam Opportunity Fund (VOF) and Vietnam Enterprise Investments (VEIL). Both trusts have seen their discounts widen despite solid underlying performance. However, their share buyback programs demonstrate the recognition of this situation and aim to reduce the discount through a combination of increased demand and reduced share supply.’
