The comments come as China’s National Bureau of Statistics announced that its economy expanded 9.7 per cent between the months of January and March this year, while consumer prices rose by 5.4 per cent in March compared with a year earlier.
"While the Chinese growth story is compelling there are still some significant inflationary concerns that can’t be ignored," said Chris Wise, who advises at Budge and Company.
"It’s likely that we will see a market correction over the next two or three years. Following the boom China has witnessed, markets are going to have to settle down at some point."
However, China-focused funds are among the best performers in the UT and OEIC universe.
Over a three-year period, GAM Star China Equity has been the outstanding performer in the IMA China/Greater China sector, returning 138 per cent compared with 45 per cent from the average China fund. Its performance has slumped in the shorter-term, however, returning just 0.67 per cent over the last year compared with 5.39 per cent from the sector average.
GAM Star China Equity is managed by Michael Lai and Mansfield Mok and invests its $1.8bn assets under management primarily in the financials and telecom, media and technology sectors.
Best performing China/Greater China funds over 3-yrs
| Fund | 1-yr returns (%) | 3-yr returns (%) |
| GAM Star China Equity | 0.67 | 138.62 |
| Henderson Horizon China | 6.54 | 96.52 |
| Franklin Templeton China | 13.91 | 57.86 |
| First State Greater China Growth | 10.63 | 52.23 |
| Neptune China | 15.52 | 50.56 |
| Average China/Greater China fund | 5.39 | 45.38 |
Source: Financial Express Analytics
Wise says that uncertainties about the Chinese economy make it very difficult to make a tactical call on the region and prefers to diversify his exposure by investing in more general emerging market funds.
"We really like the emerging market story but we haven’t got a specific China fund on our buy list," said Wise. "We prefer to have global funds, or Far East funds like First State Asia Pacific, that give us exposure to China but allow the managers to make the decisions about how heavily to invest."
Of the emerging market funds with the greatest area weighting to China, JPM Emerging Markets Small Cap is the top-performer over three years. The fund returned 61 per cent over the period compared with 45 per cent from the average China fund. Fidelity South East Asia returned 60 per cent over the same period.
Best-performing funds with large exposure to China over 3 years
| Fund | 1-yr returns (%) | 3-yr returns (%) | Exposure to China (%) |
| JPM Emerging Markets Small Cap |
9.64 | 61.30 | 36.8 |
| Fidelity South East Asia | 16.12 | 60.43 | 31 |
| First State Asia Pacific |
12.01 | 47.38 | 36.4 |
| Average China/Greater China fund |
5.39 | 45.38 | N/A |
| BlackRock Asian Dragon |
9.04 | 28.31 | 30.2 |
| Franklin Templeton Templeton BRIC |
2.07 | 19.00 | 27.38 |
Source: Financial Express Analytics
JPM Emerging Markets Small Cap was launched in November 2007 and is managed by Greg Mattiko. The fund has more than two thirds of its $482m AUM invested in the Pacific Basin. Nearly 10 per cent is invested in the Americas and the remaining funds are invested in a wide range of small cap companies globally.
Patrick Connolly, head of communications at AWD Chase de Vere, also believes the best way to make gains from China’s growth is to invest in an emerging market fund.
"China is a long-term story. Trying to time the market is extremely difficult to do. If you want to increase the exposure to China in your portfolio then you should invest in a diversified emerging market fund."