Hong Kong funds lifted by China rally

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The bounce back in China share prices since the start of the year has been a boon for Hong Kong-focused funds.

Funds invested entirely in Hong Kong-listed stocks, including H-shares, have enjoyed the strongest three-year cumulative performance to date compared with funds that have other Asia mandates.

The average three-year return for the Hong Kong equity sector is 43.78%, outstripping Greater China (38.24%) and mainland China (33.33%) funds, according to FE data. The regional laggard is Korea, which has posted a 9.5% three-year cumulative return.

Top actively-managed performers include the First State Hong Kong Growth Fund (67.21%), the JP Morgan SAR Hong Kong Fund (62.99%) and the Manulife Dragon Growth Fund (58.71%).

All three funds have major allocations to H-shares, such as Tencent, China Construction Bank and Ping An. They also have substantial holdings in blue chips, including AIA, HSBC and Jardine Matheson.

This diversification seems to enable the Hong Kong category to ride the fluctuations of the China markets more smoothly. Their average three-year annualised volatility is 15.43% compared with 16.62% for the mainland-dedicated funds. The volatility of the First State fund is just 13.68%.

However, it is the strength of the China markets that have driven performance so far this year.

The China equity sector average posted a 16.88% return in the first two months of 2019, compared with a 10.7% return by Hong Kong funds.

These figures are echoed by the latest results posted by hedge funds.

China-focused hedge funds returned 14.7% from 1 January to 28 February, far-exceeding the average return of 4.55% for hedge funds in general, according to e-vestment data.

Comparative performance of Asia regional and country equity sectors

Source: FE Analytics. Three-year cumulative performance in US dollars.

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