Of the 89 China equity funds available for sale in Hong Kong, only one was in positive territory, the best performer — the JPMorgan China New Gen Fund with a 1.88% return, FE data shows.
The second and third best performers were in negative territory. The Invesco China Focus Equity Fund had a -1.0% return and the Matthews Asia China Dividend Fund shows -1.2%.
The meager returns contrast sharply with the same period a year ago, when the top three China equity funds had double digit returns.
In the first half of 2015, the best performer the BOCHK China Golden Dragon Fund, had a 40.1% return. It was followed by the Invesco China Opportunity III Fund (39.3%) and the HS China B-Share Focus Fund (36.1%).
The first half of 2016…
…compared to the same period in 2015
In the first half of 2015, the Shanghai Composite Index was up 32%. Trading sentiment was much better in the first half, months before the China market plunge and the surprise devaluation of the RMB.
In 2016, the index was down 17% in the first half.
One reason for this year’s poor performance is the sector is that some of these funds have relatively heavy weightings in the financial sector, said Luke Ng, senior vice president at FE Analytics.
Sector weightings of the top 3 China equity funds in H1’16
| JPMorgan | % | Invesco | % | Matthews Asia | % |
| Consumer Products | 31.2 | Telecom, Media, Technology | 21.5 | Consumer Products | 30.7 |
| Financials | 30.7 | Consumer Products | 13.7 | Financials | 19.0 |
| Fixed Interest | 16.9 | Distributors | 10.8 | Telecom, Media, Technology | 18.7 |
| Utilities | 7.0 | Industrials | 9.0 | Industrials | 15.9 |
| Industrials | 5.5 | Money Market | 6.8 | Money Market | 5.4 |
| Basic Materials | 5.3 | Food Producers | 6.6 | Healthcare | 4.4 |
| Money Market | 3.4 | Health and Household | 6.3 | Basic Materials | 3.4 |
| Services | 4.8 | Utilities | 2.5 | ||
| Others | 20.5 |
Source: Funds’ factsheet, FE; data as of 31 May
UOB Kay Hian Investments added that concerns over bad loans at Chinese banks have capped investors’ interest in the financial sector.
The Chinese government has been shutting down capacity or ordering reduced production in sectors with overcapacity such as infrastructure and real estate. Much of the capital expenditure in these sectors was funded by bank loans and the production cut is likely to push up banks’ nonperforming loan ratios, the research firm said.
Its latest research estimates that the NPL value at Chinese banks has reached RMB600bn ($90bn).
According to data from FE Analytics, the 13 China-focused funds (mostly ETFs) with an allocation of at least 50% to the financial sector have negative returns during the first half of the year, ranging from -3.5 to -19.9.
