Chinese stocks have fallen 6% in the past three months, dragged down as the country’s economic recovery slows and regulators continue to target Chinese internet companies.
Those considering the sale as a way to increase China’s long-term allocations may want to look for funds that aren’t heavily biased toward the country’s internet giants – and that invest in a wider range of Chinese stocks that are less vulnerable in the United States. Chinese tensions.
Anti-monopoly measures by Chinese regulators, targeting companies like
Alibaba Holding Group
(ticker: 700. Hong Kong),
(3690. Hong Kong) and
(JD), along with intensifying competitive pressures, could mean that the cloud over some of the biggest Chinese internet stocks that dominate the market could linger longer.
Another potential risk comes from the United States as the Biden administration examines its relations with China and weighs on some of the measures implemented by President Donald Trump, including the blacklisting of certain companies which the ministry says. Defense, had ties with the Chinese military and called for increased control of outward investment in China. Still pending: a plan by the Securities and Exchange Commission that could deregister Chinese companies that do not comply with US accounting rules.
Some Chinese companies have tried to forestall these pressures by seeking secondary listings in Hong Kong or even on the mainland. Over time, fund managers say some of these companies could achieve even bigger multiples overseas, where local investors are more familiar with companies like Alibaba. The other draw: stocks cannot be used as a proxy for China, as they often are here.
As more companies get secondary listings, index providers can trade the listing they own in the index. As part of its regular review, MSCI recently said it will start using Alibaba’s Hong Kong listing rather than its US deposit slip. Funds that stay close to the index will likely follow suit.
For institutional investors, making a similar change is as easy as calling on Citibank to convert ADRs into Hong Kong stocks, said Brendan Ahern, chief investment officer of KraneShares, a Chinese firm. “For individuals, I don’t think this is an ‘off’ situation; an element of liquidity will dissipate over time. “
Ahern expects index providers to take similar steps when other companies that have researched
hit the birthdays of these secondary lists.
It’s a technical change, but as the importance of a company being listed becomes more important, retail investors may want to leave the navigation to fund managers with more leverage. But many funds are heavily concentrated in the largest Internet stocks – the type of concentration that may not provide the diversification investors think they are getting.
Barron’s looked at Morningstar Direct for China-focused funds with at least $ 200 million in assets and looked at their top holdings to find those with less than a third of assets in six internet companies – Alibaba,
(PDD), JD and Meituan.
We eliminated all charge and above-average expense ratios, as well as those that focused solely on the Chinese domestic A-share market to offer seven funds that provide a starting point for investors who want internet equity exposure. with long-term prospects still optimistic, but not too much.
The $ 2.5 billion
Fidelity China region
(FHKAX) is the largest of the group. While he held a 12% stake in Alibaba and 10% in Tencent and South Africa
(NPN, South Africa) combined, its major holdings also include banks like
(1299.Hong Kong) and semiconductor power plant
Semiconductor manufacturing in Taiwan
The flexible fund allocates about three-quarters of assets to more “growth-at-a-reasonable-price” investments with high growth and free cash flow, with the remainder being at more unfavorable rates, according to Morningstar analysts. The fund’s 18% average annual return over the past three years has surpassed 86% of its peers.
Global X MSCI China Consumer Discretionary
The exchange-traded fund (CHIQ) has struggled more recently, but its 84% return in the past year has beaten 98% of its peers. Several internet companies are among its main holdings, including Meituan, JD.com and Alibaba, but it also has holdings in national sportswear companies such as
(2331. Hong Kong) and
Anta Sports products
(2020. Hong Kong) who benefit from an increased interest in wellness, as well as an online travel agency
(TCOM), a possible beneficiary as life returns to normal post-pandemic.
While the $ 442 million
(MCHFX) is in the middle of the pack in terms of 3-year yields, it has held up better over the long term, as well as against the backdrop of recent volatility. Its 9% return in the past three months is better than 92% of its peers. The fund’s focus on dividends means it is heading in a different direction than its peers. Although he owns Tencent, he also owns companies such as the auto parts supplier.
(425.Hong Kong) and
(168. Hong Kong).
Write to Reshma Kapadia at [email protected]