Given all that’s been happening in China — poor numbers with GDP growth and manufacturing ouput, currency devaluation and market sell-off — every fund with a China focus has struggled.
In fact, not one fund filtered by our criteria showed a positive return over the one-month period to 25 August. The worst ten saw their returns go negative in the range of 23-32%.
The funds considered had to have a five-year track record, more than $100m in assets under management and be available for sale in Hong Kong or Singapore.
The top ten worst performing China equity funds:
Source: FE Analytics
Most of the funds showed a significant allocation to information technology and financial companies while some also had a considerable allocation to consumer discretionary companies.
Bet against China?
China’s central bank stepped in on Tuesday to calm the stock market turmoil by cutting the interest rate by 25 basis points to 4.6%. It also slashed the banks’ reserve requirement ratio (RRR) by 50 basis points to 1.75% to ease the liquidity conditions in the banking system.
The PBoC’s move follows a currency devaluation of about 3% earlier in the week.
“Such [market] carnage has triggered contagion of global proportion, across equity, currency, commodity and fixed income markets,” wrote Aidan Yao, senior emerging market economist at Axa IM in a market note.
“Given that China was seen at the root of this turmoil, all eyes were on the PBoC to alleviate market fears. We think [this] will go some way to reassure investors that the authorities haven’t turned a blind eye on the market turbulence, which, if it continues, could trigger systemic failures.”
But is China really behind the global market turmoil? Torsten Slok, international economist at Deutsche Bank Securities, wrote in a client note that he has two problems with that:
1) Betting against China has been a losing proposition for decades, why should now be different?
2) Despite this being a client conversation for several months, I still haven’t seen a smoking gun chart showing why a slowdown in China will have a significant impact on the US expansion. If you have one then please send it along.