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Asian market focus – ahead of Chinese New Year

Kate Marshall, Lead Investment Analyst at Hargreaves Lansdown, comments:

“As the Chinese year of the tiger begins, the Asian market is set to really bare its teeth. Asian markets have developed rapidly in recent decades and given the potential for further change, and for Asia to dominate more of the global economy, the region is often deemed the future engine of global growth.

Asian markets have started to exert their dominance over the past decade. China, for example, made up 15% of the broader emerging stock market back in 2008, but has since reached around one third. At the same time, there’s been a shift in the major sectors that make up the market. Internet, IT, and e-commerce companies represent around 40%, replacing energy and materials as some of the largest sectors, and a lot of these big tech names are based in China.

A catalyst for this change has been the gradual opening of China’s stock markets to foreign investors. All of this means an increasing number of China-focused funds have launched over the past decade, and many investors have upped their allocations to the world’s most populous country.

Looking ahead, China’s ‘common prosperity’ agenda could bring more change. It aims to reduce inequality and narrow the gap between the rich and poor. Several policy initiatives have already been implemented, but there will likely be far more to come. Don’t overlook some disruption in the short term though – this happened last year when the authorities put the brakes on private education companies. In this case it could help bridge the gap between those families able and unable to afford extra tuition. But it also means education companies are no longer allowed to make profits.

Over the longer term, improved wealth distribution could put more purchasing power in the hands of the poor, benefiting a range of companies. In fact, the Chinese middle and upper income groups are forecast to expand by over a third of a billion people by 2030. That’s about as many people that currently live in the US.

While the size of China’s market means it offers lots of opportunity, it faces challenges too and won’t necessarily be the best-performing market from year to year.”

Funds to watch:

FSSA Greater China Growth:

This fund focuses on the Greater China region, which covers China, Hong Kong, and Taiwan. It’s run by Martin Lau and a team with a great pedigree of investing in China. Stewardship forms part of the fund management team’s philosophy, meaning they focus on ESG issues and engage with companies to make ensure they meet good governance standards.

JPM Emerging Markets:

This fund invests more broadly across the emerging markets, including India, Taiwan and Brazil. But one of its main areas of focus is China, where around 40% of the fund is currently invested. The managers currently mainly focus on three core areas: the technology, financials and consumer sectors, though this can change over time depending on where they find what they believe to be the best opportunities.

Top China funds by net buy (Jan so far, alphabetical)
Allianz China A-Shares Equity
AXA WF Framlington All China Evolving Trends
BlackRock China A-Share Opportunities
CRUX China Fund
Fidelity China Consumer
First Sentier All China
JPM Greater China
Templeton China
Threadneedle China Opportunities
Veritas China

*Funds in the China/Greater China IA sector. Date correct as of: 26/01/2022

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