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3 China Mutual Funds to Buy as Economy Recoups

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China’s economy gained traction last month, which makes us believe that it doesn’t require further stimulus measures. While factory activity touched its highest level in almost two years, service activity also expanded. Increased government spending on infrastructure coupled with solid retail sales also bear evidence of economic strength.

Given such upbeat trends, the addition of mutual funds having significant exposure to Chinese securities could be a lucrative investment option. Now, we will take a quick look at some of the encouraging data that raised hopes of stable economic growth in China.

Manufacturing Hits Highest Level in Almost Two Years

The official manufacturing Purchasing Managers' Index (PMI) increased in August to 50.4 from the July reading of 49.9. The nation’s manufacturing activity touched its best level since October 2014. Significant improvement in new orders and increase in production led the manufacturing PMI to enter the expansion zone last month.

Moreover, industrial output also advanced 6.3% year over year in August from the 6% increase in July. Industrial production posted its best increase in five months. Steady growth in China’s steel industry contributed to this increase in industry output.

Services Continue to Expand in August

China’s services PMI fell slightly from 53.9 in July to 53.5 in August, but the country’s non-manufacturing activity continued to expand last month. Service activity expanded in China on the back of steady growth in telecommunications, construction and transportation sectors.

Following economic slowdown in the beginning of this year, China focused more on the performance of the service sector. Now, the service sector holds at least 50% of its GDP and is expected to register steady growth in the coming months.

Government Spending and Retail Sales Register Progress

In the first eight months of this year, government spending on infrastructure grew 21.4% year over year. Rise in government infrastructure spending indicated administrative efforts to stabilize the country’s economy.

Moreover, property investment progressed 6.2% year over year last month, much higher than an increase of only 1.4% in July. Additionally, gains of 13.1% in auto sales led to a strong rise in retail sales. In August, retail sales increased 10.6% in, better than a 10.2% rise in July.

Buy These 3 China Mutual Funds

The aforementioned positive data clearly indicated stabilization in the Chinese economy and raised hopes that the world’s second biggest economy might reach its full-year GDP growth target of 6.5% to 7% in the coming months.

Moreover, the Shanghai Composite Stock Market Index gained 4.5% in last three months. Additionally, mutual funds related to China’s equity market also registered strong returns. According to Morningstar, the China region equity mutual fund posted 3-month, year-to-date (YTD) and 1-year returns of 15%, 7.6% and 12.6%, respectively. The following reading was much better than other international equity funds.

This upbeat backdrop calls for investors’ attention to three China mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive year-to-date (YTD) returns. They also have minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Invesco Greater China Y AMCYX seeks growth of capital for the long run. AMCYX invests more than 80% of its assets in securities of those companies which are situated or have operations in Greater China. The fund also invests nearly one-fifth of its assets in equity and debt securities of companies around the world.

AMCYX has an annual expense ratio of 1.63%, lower than the category average of 1.66%. The fund has YTD returns of 10.7% and has a Zacks Mutual Fund Rank #1.

Fidelity Advisor China Region A FHKAX invests the lion’s share of its assets in common stocks of companies located in China, Hong Kong and Taiwan. FHKAX generally invests around 35% of its assets in that industry which holds more than one-fifth of the Chinese, Hong Kong and Taiwanese market. The fund seeks capital appreciation for the long run.

FHKAX has an annual expense ratio of 1.26%, lower than the category average of 1.66%. The fund has YTD returns of 1.1% and has a Zacks Mutual Fund Rank #2.

Matthews China Dividend Investor (MCDFX - Free Report) seeks returns through income growth. MCDFX invests the majority of its assets in dividend-paying securities of those companies which are based in China. The fund not only invests in equity securities but also convertible debt instruments.

MCDFX has an annual expense ratio of 1.19%, lower than the category average of 1.66%. The fund has YTD returns of 8.3% and has a Zacks Mutual Fund Rank #1.

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