Chinese New Year

Chinese New Year - what does the year of the rat mean for China funds?

Chinese New Year

The first day of the Chinese New Year, also known as the Spring Festival or the Lunar Near Year, fell at the weekend on Saturday 25 January. It also heralded the start of the year of the Rat, the first in the 12-strong Chinese zodiac.

The rat is seen as intelligent, quick-witted and able to outsmart others. According to Chinese myth, the Jade Emperor organised an animal race on his birthday to decide the order of the Chinese zodiac. Legend goes that the rat convinced the ox to give him a ride, but jumped off at the finishing line to nab first place and be the first animal in the cycle.

The rat also symbolises fertility, wealth and new beginnings. In particular, the rat is seen as able to turn unfortunate events into fortunate ones, so many people see 2020 as a year of renewal and regrowth for China (although this seems unlikely in the light of the rapid spread of the Coronavirus epidemic), signalling the end of the US-China trade war and Hong Kong protests.

Chinese prosperity

China and Asia are usually seen as investments for more adventurous investors willing to accept greater volatility in exchange for higher returns. But with progressive reforms in Asian economies and Asian companies maturing into global leaders, the region is beginning to look pretty stable in what is an increasingly uncertain world. Is 2020 the year to invest?

The China/Greater China sector was the worst performing of all Investment Association (IA) sectors in 2018 (-15%), but despite the ongoing trade spat with the US, it was one of the strongest sectors in 2019 (+22.9%), showing that past performance can often be a poor indicator of future performance (click on image to see full rankings).

The top two performing funds in 2019 include Matthews Asia China and Baillie Gifford Greater China, which have just one and three gatekeeper picks respectively. But even more interesting is the number of funds in the top 10 by three-year returns with no picks at all — Pictet’s Greater China fund is the only fund in the top five with no picks at all. This is often because many asset allocation models still don’t make allocations to China, which, given its size and impact on the global economy, is misjudged (click on image to see full rankings).

Among the funds with the most picks, are the Quilter China Equity with 18 picks and First State China Growth. The Quilter China Equity fund is sub-advised by Janus Henderson.  First State has always been seen as the ‘go to’ fund manager for Asian funds, but recently Matthews Asia has overtaken it in the popularity stakes. However, with two funds in the top four for one-year returns, its performance shouldn’t be overlooked.

Photo by Thomas Despeyroux on Unsplash