Mumbai: Indian investors invest money in China-focused mutual funds even as a Beijing regulatory crackdown removed more than $ 1 trillion from the combined market capitalization of tech giants like Alibaba and Tencent this year. Although it is a niche category with only two fund companies – Edelweiss and Axis – offering these programs, assets under management (AUM) have continued to increase despite negative returns this year (see graph) .
The Axis Greater China Equity fund, which was launched in February this year, saw its AUM rise 4 times to reach Rs 120 crore in August, from around Rs 30 crore at the end of February, even as the net asset value fell by 14% at the same time. Edelweiss Greater China Equity Off-Shore Fund saw its assets under management increase 62% to Rs 1,808 crore in August, from around Rs 1,119 crore at the end of 2020, even as the net asset value (NAV) fell by more than 6% during the same period. Both have the fund of funds (FoF) structure, where capital is invested in underlying programs, which in turn buy stocks in China, Hong Kong, and Taiwan (greater China region).
“We get regular inflows… smart investors are adding more and more, a lot of people were waiting on the close to invest in China. July was one of the best months for inflows to the Greater China Fund. Even August and this month have seen good flows, ”said Niranjan Avasthi, product, marketing and digital manager at Edelweiss MF.
Axis MF is also experiencing a constant increase in investor interest and its fund has recorded net inflows since its creation. “The largest category of the fund is mature investors who understand the role of the China allocation in their portfolios. Sophisticated investors are also aware that although the Chinese market has delivered decent returns, it has historically been very volatile, ”said Ashwin Patni, head of products and alternatives at Axis MF.
The Edelweiss fund is approximately 20% exposed to the technology sector, which is hit hard by regulatory repression. “China wants to reduce monopolies, draw clear paths as well as certain social aspects. China’s history is shifting from an export-oriented economy to a national economy… the mainland Chinese market is also adding to emerging market indexes, which will lead to a further increase in global inflows ” , Avasthi said, adding that the pain in the tech sector is expected to ease. out in a year.
“China has a very strong growth environment. But it is also a market which has a very heavy trading component, which is why we see some really big ups and downs from time to time. So investors who come without this background may be put off, ”Patni said. Currently, global funds are a small space, China is even smaller. However, investment in international markets will gradually increase and may reach 10% of the equity allocation within a few years, according to Patni.
A Goldman Sachs report released last week also cited economists saying China is still investable because regulations are unlikely to structurally harm corporate earnings.
The Edelweiss fund, launched in 2009, has shown a 20% return (compound annual growth rate or CAGR) over the past 5 years, which has helped attract investors looking for better returns over the years. year and a half. The AUM of the Edelweiss fund has risen from around Rs 152 crore at the start of the pandemic to over Rs 1,800 crore this month.
Mutual fund Navi, backed by Sachin Bansal, also filed a China-focused mutual fund application with market regulator Sebi on Friday, which would make it the third such mutual fund system. in India.


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