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Tech, emerging Europe outperform in 1H

The stragglers are funds focussed on Asia where the Sino-US trade conflict has taken the greatest toll on asset prices.

Stock markets have had a bumpy ride during the first six months of the year, as investors have struggled to make sense of conflicting economic indicators and likely policy responses, while constantly unsettled by the vicissitudes of the trade spat between the US and China.

Euphoria at the start of the year when the US Federal Reserve turned dovish, drove equity markets higher until the end of April. Then a sudden escalation of tariff rhetoric raised the spectre of a protracted trade dispute that would damage global economic growth and corporate earnings.

The US yield curve inverted and investors feared that a US slowdown might slide into a recession. Risky assets became unpopular, and investors steered towards the safe haven of US Treasuries and other high quality bonds.

(Almost) all positive

Nevertheless, for funds available to retail investors in Hong Kong and Singapore, almost all equity fund categories posted positive cumulative returns for the first half of the year, according to FE Analytics data.

Leading the pack is TMT funds, with an average return of 22.33%, according to FE Analytics. Within this category, in terms of individual funds, two Blackrock products had the first and third best returns — Next Generation Technology (34.35%) and World Technology (29.82%) funds. The JP Morgan US Technology Fund (31.52%) was the second best.

Also in the top-five fund categories are emerging Europe (22.9%) and single-European country funds (19.99%), where investors’ confidence in Russia’s economic outlook has been the dominant factor. The top-performing fund in the category is the Pictet Emerging Europe Fund, whose top ten holdings are all Russian stocks, according to its factsheet.

The “consumer goods and services” fund sector has also outperformed (20.85%), possibly supported by investors’ tilt away from export-focussed sectors.

Perhaps perversely, China funds made it into the top-five best performing categories, posting a 18.77% gross return from 1 January to 30 June.

Funds invested in North American equities were the sixth best category, despite the S&P 500 continuing to reach record highs throughout the year.

Turning to the worst performing categories, the impact of the trade dispute has also been apparent in Asian markets. Ten out of the 11 worst performing fund categories were Asian, including single country sectors such as India, Japan, Taiwan and Hong Kong, as well as broader categories such as Asia-Pacific, including and excluding Japan. (The sector that broke up the sequence was the energy category, placed ninth worst).

But the bottom performer — actually in negative territory — is Korea single-country funds, which on average returned -0.34% in US dollar terms during the period. The trade dispute and speculation of its future transformation into a war over technology weighed on Korea’s tech-heavy stock markets.


Comparison of equity fund category average returns, 1H 2019

Source: FE Analytics. Gross returns 1 Jan 2019 – 30 June 2019 in US dollars.

Part of the Mark Allen Group.