As markets sell off heavily in reaction to the coronavirus outbreak, JP Morgan China Growth & Income co-manager Howard Wang reminds investors that they need to be focusing on the long term during this short-term crisis.
“It is more important than ever for investors to take a long-term view on those areas in which a disciplined approach can add value,” Wang said.
“While the outperformance of Chinese equities has been notable year-to-date, in the short run we should understand that they are and will remain a volatile asset class.”
Indeed, the IA China/Greater China sector has fared the best overall in the open-ended space since the start of the coronavirus outbreak, sustaining a loss of ‘just’ 5.18 per cent since the start of the year.
Performance of equity sectors over 2020
Source: FE Analytics
Other sectors have been hit much harder, with the UK bearing the hardest brunt in terms of losses as the IA UK Smaller Companies sector has lost 35.55 per cent since 2020 began.
This doesn’t mean that China’s economy has not been impacted, Wang clarified, but this unprecedented short-term event “will not derail longer term consumption trends in mainland China”.
It is these healthcare and technology trends which Wang said he had “anchored” the £225.2m JPMorgan China Growth & Income trust to before the virus crisis began. Wang and co-managers Shumin Huang and Rebecca Jiang are “looking to the long term, to identify strong businesses which will emerge from these challenging times with improved competitive positioning relative to weaker peers”.
The team believes so strongly in these themes that they have “not made significant changes to the portfolio,” unlike many who have scrambled to put defensive tilts on their investment vehicles.
“We retained our discipline around finding strong businesses which we believe will emerge from these situations in a more competitive position,” Wang said.
And it seems to have paid off for the trust as it has managed to stay ‘in the black’ over the past year, generating 26.70 per cent returns while its average IT Country Specialist: Asia Pacific ex Japan peer has lost money.
In fact the trust has been the top performer in its sector across one, three, five and 10 years, as well as over shorter time frames.
Performance of trust versus sector and index over 1yr
Source: FE Analytics
Looking into healthcare and technology, which make up just over 46 per cent of the trust’s sector allocation combined, Wang said: “We believe the long-term structural story in China will continue to be driven by healthcare, technology and the consumer, and as such have not made positioning changes. Many of the growth opportunities and development of the market continue on the same track.”
On technology, Wang said 5G was a perfect example of this. As the new data technology roll out will help companies improve their efficiency but also their “connectivity”, a key component “to provide a better platform for gaming and online shopping, especially in a country with hundreds of millions of millennials, keen to spend”.
The manager added that technology is already established as a strong structural trend in China. And with the country, along with the rest of the world, in isolation at home people will increasingly use e-commerce platforms to shop “in many cases cements online habits”.
On healthcare – a seemingly apparent choice as the world goes through a virus pandemic - the demands on this sector have never been greater.
“Chinese R&D capabilities are improving and over time consumers devote a larger share of their discretionary spending power to healthcare and to related services such as insurance,” Wang said, highlighting the growing middle-class trend spending more on a better lifestyle and health.
The five FE fundinfo Crown-rated JPMorgan China Growth & Income trust has a 4.2 per cent dividend yield and is trading at a 4.2 per cent discount with 13 per cent gearing. It has an ongoing charges of 1.26 per cent.