China has effectively tackled the economic crisis it was facing just a few months back. Thanks to the government’s stimulus measures its economy grew at 6.7% in the first quarter. This growth came in line with the targeted growth range of 6.5% to 7% for this year.
Rise in new loans showed that the People’s Bank of China (PBC) had taken necessary steps to invigorate its economy. New loans issued by Chinese banks increased significantly to 1.4 trillion yuan in March from 726.6 billion yuan in February, according to the PBC.
Upbeat industrial production, retail sales and export data in the first quarter make it even clear that the growth is robust. Hence, it doesn’t seem to be a bad proposition to invest in China-focused mutual funds for better returns (read: 3 Mutual Funds to Buy on a Resurgent Chinese Economy ).
Before we hand pick some good funds, let’s take a look at the latest data:
Industrial Production Rise in Q1
China’s value added industrial output expanded 5.8% YOY (year over year) in the first quarter of 2016, according to the National Bureau of Statistics of China (NBS). Industrial production in March alone grew at 6.8% YOY, the highest growth rate since June. Economic expansion was broad based, with eastern, western and central regions witnessing growth of about 6.3%, 7.3% and 7% in the first quarter, respectively. Meanwhile, manufacturing output expanded by 6.5% in the said quarter.
This rise in industrial production is expected to boost funds having a considerable exposure to the industrial sector. Funds such as Oberweis China Opportunities Fund (OBCHX - Free Report) and Matthews China Fund Investor Class ( (MCHFX - Free Report) have more than 10% exposure to the manufacturing space and stand to gain from this encouraging data.
Retail Sales Jump in Q1
During the first of quarter, China’s retail sales of consumer goods surged 10.3% YOY, according to the NBS. Retails sales in March expanded at 10.5% YOY, faster than the growth rates in January and February. Online retail sales soared 27.8% YOY in the first quarter, which accounted for around 13% of gross retail sales.
Rise in salaries and low consumer prices played a major role in lifting retail sales in the first quarter. Funds having exposure to the consumer discretionary sector are poised to gain from this increase in retail sales.
Exports Increase in March
Export data was promising in March primarily due to weakness in the yuan in earlier months of this year. Chinese New Year also helped exports to increase. According to the General Administration of Customs, China’s exports climbed 11.5% YoY in March.
Rise in export had a positive impact on Chinese American depository receipts for companies including China Mobile (CHL - Free Report) , CNOOC (CEO - Free Report) , PetroChina ( (PTR - Free Report) and Sinopec (SNP - Free Report) . Funds that have invested in the aforementioned companies are positioned to benefit.
5 China-Focused Mutual Funds to Invest In
At the end of the first quarter, the Chinese economy picked up. Solid industrial production, retail sales and export data raised hopes that the economy is stabilizing. Additionally, the rise in new yuan loans indicated that credit facilities are easily available to businesses, which in turn will boost the economy.
Mark Mobius, executive chairman of Templeton Emerging Markets Group, lifted investors’ spirits when he said that “China is a huge, growing economy. Even if it grows at 5%, it’s still incredible.” Banking on this optimism, it will be wise to invest in China focused mutual funds that have given promising returns for a considerable period of time. These funds also possess strong fundamentals, which will help them advance in the future as well.
We have selected five such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer minimum initial investment within $5,000, carry a low expense ratio and have impressive 3-year annualized returns. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear.
Fidelity China Region (FHKCX - Free Report) invests a major portion of its assets in securities of Hong Kong, Taiwanese and Chinese issuers that are tied economically to the China region. FHKCX’s 3-year annualized return was 3.8%. Annual expense ratio of 0.96% is lower than the category average of 1.76%. FHKCX has a Zacks Mutual Fund Rank #2.
Matthews China Dividend Investor (MCDFX - Free Report) invests the majority of its assets in dividend-paying equity securities of companies located in China. MCDFX’s 3-year annualized return was 6.7%. Annual expense ratio of 1.19% is lower than the category average of 1.76%. MCDFX has a Zacks Mutual Fund Rank #1.
AllianzGI China Equity A invests a large portion of its assets in equity securities of Chinese companies. ALQAX’s 3-year annualized return was 3.6%. Annual expense ratio of 1.7% is lower than the category average of 1.76%. ALQAX has a Zacks Mutual Fund Rank #2.
Invesco Greater China Y (AMCYX - Free Report) invests a major portion of its assets in equity or equity-related instruments issued by companies located or operating in Greater China. AMCYX’s 3-year annualized return was 5.1%. Annual expense ratio of 1.63% is lower than the category average of 1.76%. AMCYX has a Zacks Mutual Fund Rank #2.
Matthews China Investor invests the majority of its assets in the common and preferred stocks of companies located in China. MCHFX’s 3-year annualized return was 0.1%. Annual expense ratio of 1.14% is lower than the category average of 1.76%. MCHFX has a Zacks Mutual Fund Rank #1.
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