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Chinese Service Sector Gathers Steam: 3 Fund Picks

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China’s resilience to the recent global economic shocks is evident from the fact that despite trade-war-related tensions, the country’s service activity managed to notch up a four-month high in June. Consistent efforts by China’s policymakers to fortify the world’s second-largest economy against industrial debts has also paved way for a burgeoning service sector.

Moreover, business confidence among Chinese entrepreneurs also rose for the ninth straight quarter. Taking such factors into consideration, investing in mutual funds from the country seems prudent.

Service PMI Hits 4-Month High

China has been banking on the strength of its service sector ever since it shifted focus toward achieving sustainable economic growth. The reason for this is because a strong service sector within an economy offsets declining profits from heavy industries amid sincere efforts by China’s policymakers to rein in the country’s debt load and abate risks.

Such efforts are evident from the fact that the country’s service activity expanded to its highest level in the last four months. Per the latest report on Jul 4, the Caixin China services purchasing managers' index increased to 53.9% in June from 52.9% in May. Also, any reading above 50 indicates expansion in service activity.

Business Confidence Improves for Nine Straight Quarters

China’s efforts toward achieving high-quality development amid its resilience to external economic shocks resulted in increased business confidence among the country’s entrepreneurs.

Per the latest report from National Development and Reform Commission (NDRC) on Jul 5, entrepreneur confidence index exhibited growth for nine consecutive quarters, increasing to 75.8% in the first quarter of this year.

Further, the business climate index for the second quarter increased to 58.5%. The report also stated that despite global economic uncertainties, recovery in the market would continue, paving the way for increased trade. Foreign trade has already increased 8.6% year over year in June.

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 10.3% and 11.8%, 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 1.68%.

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 4.2% 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.

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 7.5% and 12.1%, 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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