China-Centric Mutual Funds Face Headwinds. Know Why and What Should You Do

China-based mutual funds have been on a roller-coaster ride recently as they are facing bouts of growth followed by a considerable decline. Know what is causing the downturn of these funds and what you should do

 Investing in China
  • International mutual funds investing in China are called China-based mutual funds
  • Such mutual funds have once again hit a roadblock in growth.
  • Some of the major reasons for the bump include a flare-up of COVID cases, reduced exports, and reduced confidence in the market.
  • Existing investors should be patient and wait out the decline stage

International mutual funds give you exposure to international markets. However, with funds focussing on China, the returns have been on a roller-coaster ride in recent years. While such funds were recovering post the pandemic’s effect, they are yet again in the red as losses mount. Have a look at how the leading China-centric MFs have performed from January 2023 till June 2023 –

  • Axis Greater China Fund – Fell by 6.23%
  • Edelweiss Greater China Equity Fund – Fell by 4.94%
  • Nippon India ETF Hang Seng BeES – Fell by 2.21%

The aggregate Assets Under Management (AUM) of China-based MFs also remained stagnant at ₹2028 crores at the end of May 2023 against ₹2072 crores reported after June 2022.

Why the fall in returns?

Market analysts predicted 2023 to be China’s year as the country opened up for business after the pandemic-induced lockdown. However, things didn’t turn out as expected. The following factors caused strong headwinds –

  • A downturn in the property market
  • Increase in COVID cases
  • Global slowdown causing a decreased growth in exports
  • Weaker currency
  • Falling interest rates
  • Disinflation
  • Lack of confidence among households and businesses
  • Policy restrictions, etc.

These adverse factors stunted China’s economy which affected its equity markets. Since China-based mutual funds invested in such markets, their returns had an adverse effect too.

Also Read – Know the consequences of China’s reducing GDP on India

What do experts say?

Assessing the downturn in China-centric mutual funds, experts believe that the economic recovery of the country would take time. Till then, such mutual funds might suffer a downturn and even negative returns.

For new investors looking to tap into the benefits of international markets, the United States of America can be a good bet. Though the country is in a recession at present, it has the wherewithal to recover and offer stable returns.

What should you do?

If you are an existing investor and your fund balance is in the red, it doesn’t make sense to redeem as you would incur losses. Instead, you should wait out the downturn as markets recover.

For new investors looking to invest in China’s economy, long-term investing is the key. You should have an investment horizon of more than five years to expect attractive returns. For shorter horizons, other funds would be a better choice.

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The bottom line

Assess your mutual fund portfolio and see how your funds are performing. If you have invested in a mutual fund focusing on China’s growth, be patient and wait for the market to recover. Also, allocate a small part of your portfolio to China-specific mutual funds to keep the risks low while you can capitalise on the economy’s recovery.

So, make an informed choice when investing or reviewing your mutual fund portfolio.

Also Read – 7 Factors that might affect the Indian economy in 2023


Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.



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