Roughly 90% of all China equity funds are in negative territory year-to-date, following crisis after crisis for the market, Trustnet has found.
The Chinese equity market was first hit by a sell-off in February, sparked by fears of inflation and an ensuing slump in government bonds.
Large-cap technology stocks Tencent, Alibaba and JD.com were hit particularly hard, which was bad news for investors: these three companies make up more than a quarter of the entire MSCI China index.
These same technology stocks were then battered by a regulatory crackdown from the Chinese Communist Party (CCP) over the summer.
China has also suffered from its ‘Covid-zero’ policy, which has prompted lockdowns of entire cities to curb further outbreaks of the virus.
Most recently, Chinese equities have been dragged down by the possible bankruptcy of Evergrande, China’s second largest property developer, which it is feared could cause a domino effect of debt defaults across the country.
These events have taken their toll on the market, with the IA China/Greater China sector down 10% year-to-date, and the MSCI China down 17% and 30% from its February peak.
Performance of indices year-to-date-1.png)
Source: FE Analytics
The table below shows the worst-performing IA China funds so far this year.
Source: FE Analytics
Worst hit was the £275m Invesco PRC Equity fund, which is down 21.3% year-to-date and 33.6% from its February high.
The fund, managed by William Yuen and Mike Shiao, holds Tencent, Alibaba and JD.com in its top-10.
Its largest holding is a 9% position in Tencent, which has fallen more than 40% from its February peak.
The technology giant has struggled with the regulatory crackdown which has forced it to give up its exclusive music licensing rights, pay a £1.1bn fine for anti-competitive behaviour and make a £5.6bn donation to China’s ‘common prosperity’ fund.
The £292m Fidelity China Consumer fund, managed by Hyomi Jie, was also hit hard, down 21.1% year-to-date and 34.4% from its February high.
It has also been dragged down by its heavy overweights to Tencent and Alibaba, which make up 9.8% and 9.1% of its portfolio respectively.
The £616m Janus Henderson China Opportunities fund and the £790m HSBC GIF Chinese Equity fund were also harmed by their high exposure to Tencent and Alibaba, as well as other technology companies that have been targeted by the CCP.
For example, NetEase, a Chinese internet technology company focused on gaming and advertising, is a top-10 holding for both funds. Shares in the company are down 37% from their 2021 peak.
Given the poor performance of the MSCI China index compared with the IA China/Greater China sector, it is no surprise that several passive vehicles are among the worst performers.
Notable trackers include the £1.3bn Xtrackers MSCI China UCITS ETF and BlackRock’s £459m iShares China Large Cap UCITS ETF.
On the other side of the performance tables, only seven of the 56 funds in the IA China sector have delivered positive returns so far in 2021. These include AQR China A Equity UCITS, Matthews China Dividend and NB China Equity.
Source: FE Analytics
However, all of these seven are also down since February.