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China's Manufacturing Activity Gains Traction: 3 Fund Picks

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Per the latest report from China, manufacturing activity has gathered steam last month. The official Chinese manufacturing Purchasing Managers' Index (PMI) hit an eight-month high in May. Robust demand-supply dynamics and an upsurge in global commodity prices set the tone for such gains.

Further, the International Monetary Fund (IMF) recently vested its confidence in China’s economy by stating that the country would experience steady economic growth in the days ahead. Such circumstances make it ideal to bet on mutual funds having sufficient investment in Chinese companies.

Manufacturing Activity Rebounds

Factory activity in China surged in May, more than initially estimated. The PMI, which surveys large companies and state-owned enterprises in China, came in at 51.9 last month against an estimate of a dip to 51.3 from 51.4 in April.

This was its highest level since October 2017. Further, this was also the 22nd straight month that the PMI exhibited expansion. Moreover, production increased at the fastest pace in the past six months and growth in new orders notched an eight-month high.

Such gains were made possible by steadily rising commodity prices. Moreover, the report also eased tensions of economic contraction from trade-war, with the United States and China’s measures to rein in the latter’s humungous debt load.

IMF Vests its Faith in Chinese Economy

In a report published in Beijing last month, the IMF stated that China would stay on track to achieve sustainable growth. The report also stated that China’s shift of focus from “high-speed” to “high-quality” growth has made the Washington-based organization confident about the Asian giant’s growth prospects.

This report came right after the conclusion of IMF’s two-week annual review visit to China with top-notch leaders from the country, the likes of which included Vice-Premier Liu He and central bank governor Yi Gang.

Per David Lipton, the IMF’s first deputy managing director, an acceleration in de-risking of the financial sector, deceleration in credit growth, reduction in overcapacity and intensifying anti-pollution efforts would steer China’s economy toward sustainability.

3 Best Fund Choices

Given such circumstances, we have highlighted three mutual funds that are poised to gain significantly from strength in the Chinese economy. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Matthews China Investor (MCHFX - Free Report) seeks to achieve its objective by investing a major portion of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in China.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.3% and 11.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

MCHFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.09%, which is below the category average of 1.69%.

Fidelity China Region (FHKCX - Free Report) invests the majority of its assets in securities of Hong Kong, Taiwan and China issuers as well as other investments that are tied economically to the China region. It invests primarily in common stocks.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 3.6% and 10.8%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FHKCX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.99%, which is below the category average of 1.68%.

Oberweis China Opportunities (OBCHX - Free Report) seeks appreciation of capital in the long run. The fund invests the majority of its assets in securities in China as well as equity-linked certificates that provide exposure to shares of companies, which are listed on foreign markets.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 4.3% and 12.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

OBCHX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.91%, which is above the category average of 1.68%.

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