China funds have been languishing for more than a year, but lately we’ve seen a remarkable shift. In November, despite some of the biggest protests in 30 years, the stock market rallied.
According to data from Morningstar, the best performing funds last month were all China or Hong Kong funds, with the top 10 all returning between 20-30%.
We have to climb down to 30th place to find a non-China/Asia fund, where we see two global emerging markets funds, but overall, the vast majority of the top 50 have a China or Asia ex-Japan focus.
Top Performing Funds in November
The top performer of the month was UBS EF China Opportunities with a 28.01% return. This almost makes up for the October losses of -20.99% where it had the worst return of all the funds in our dataset. But it is still down 15.12% in 2022.
In total, half of the top 10 were in the bottom 10 last month. Joining UBS’s opportunity fund in jumping up from the bottom were Fidelity China Focus (the only fund with a positive return this year), Schroder ISF Hong Kong Equity, JPM Greater China, and JPM China. Three Silver-rated growth funds from FFSA also feature in this list.
China's Turbulent Year
The rally follows months of market and economic struggle, with shares under pressure and bad data coming out of the country. China soared during Covid-19 as the tech sector boomed and semiconductors became everyone’s favourite investment. But the government clamped down several key industries, including technology which hit big names like Alibaba (BABA) and Tencent (00700) hard.
Ben Yearsley, director of Shore Financial Planning, says the markets have pivoted around possible relaxation of Covid policies.
He says: “The big news last month was undoubtedly in China. At the start of the month there was bad news on the economic front with a fall in both imports and exports (for the first time since May 2020). However Chinese stock markets rallied strongly after hints of a relaxation in strict covid rules – although shortly after this happened more cities were locked down again.”
On a political level, the latest Communist Party Congress reshuffle saw President Xi Jinping joined by more of his own allies. This increases what's known as “autocracy risk”: when government power is concentrated in the hands of the few .
Markets are expecting a hard-line approach to the zero-Covid programme, more opaque future government policies, and greater uncertainty and risk. Autocracy risk can — in addition to limiting human freedom — stifle growth, prolong market downturns, and trigger capital flight. In China, trade restrictions and zero-Covid policies that shut down some of the country’s largest factories are other examples of autocracy risk.
Bottom Performing Funds in November
It’s not just China’s rebound that has been remarkable this month: the Americas surprised on the downside with a bad month, featuring at the bottom of the table after a strong year, particularly US growth large-caps and Latin American equities.
Only one fund had a double-digit loss in November: Morgan Stanley US Advantage, down 10.54%. The Silver-rated fund has struggled all year and has lost a whopping 46.69% over the past 11 months, and is down to 2019 levels.
Abrdn Latin American Equity and BGF Latin American both fell from top to bottom over the month. In October, they were both up around 8%, but in November, they were down 7.74% and 5.67% respectively. Along with these two we also found JPMorgan’s Latin America Equity, which lost 7.16%. And, Abrdn had another two funds in the bottom 10 as well: Abrdn Latin American Equity Fund, which was down 6.25% last month, and Abrdn Global Absolute Return Strategies Hedged, down 4.81%.
While Latin American funds were down in November, this has hardly made a dent in what’s been a very successful year for the commodity and energy-heavy region. Three of the four funds mentioned above have returns above 20% over the past 11 months, and the fourth is at 16%.
