Funds News
- China funds led world in returns in 2006
Date: 5-Jan-2007 Sources: (Shenzhen Daily)
THE world's best-performing mutual funds last year invested in China, and made the biggest bets in just a few companies. They're counting on the same strategy for 2007, targeting banking, insurance and real-estate stocks.
Five China funds led 1,506 stock funds with at least US$1 billion in assets, according to research data. Those focused on Japan, the favorite for global money managers surveyed by Merrill Lynch & Co. at this time last year, posted 10 of the 20 worst returns, measured in dollars.
Howard Wang's US$3.2 billion JP Morgan JF China Fund doubled in value, topping the list, and Lilian Co's US$2.7 billion Baring Hong Kong China Fund was second with a 95 percent return. China's growth, faster than that of any other major economy, helped, sending the Morgan Stanley Capital International China Index up 79 percent in 2006. It was the first year in three the index beat Morgan Stanley's broader emerging-markets benchmark.
'People just ignored China, but as we moved into 2006, people had a wake-up call on how healthy the economy was,' said Co, who is based in Hong Kong. As a result, 'you need stocks that have significant weightings to really make a difference.'
The economy also made big investments less risky, said Co, whose 10 largest holdings accounted for 40 percent of her assets. Guangzhou R&F Properties Co. and China Overseas Land & Investment Ltd. were among Co's biggest investments. Her concentration compares with a median of 27 percent for funds with at least $1 billion, excluding those that invest in other funds.
Wang kept more than half of the fund's assets in the top 10 stocks. Third-placed Fidelity China Focus Fund, with $4.5 billion in assets and run by Martha Wang, had 42 percent of the fund in the biggest 10 holdings. Both managers, also based in Hong Kong, focused on financial shares, including Bank of Communications Co. and China Life Insurance Co.
'Property and banks will continue to outperform because of the robust economic picture in China,' Co said. 'Domestic consumption and retailers will also do well. With economic growth of 9 percent to 10 percent a year for the next few years, how could you be bearish?'
China's economy, which surpassed the U.K. to become the world's fourth-largest last year, has boosted living standards and created a burgeoning middle class.
Incomes in Chinese towns and cities, home to more than 500 million people, increased by 10 percent in the first nine months of 2006. China had 320,000 millionaires at the end of 2005, a 6.7 percent increase from a year earlier, a report by Merrill Lynch and Cap Gemini SA showed. That compared with 2.7 million in the United States and 448,000 in the United Kingdom.
At the Plaza 66 Mall in Shanghai, China's wealthiest city by per-capita income, more than 100 European and U.S. luxury brands have opened stores, including Cartier, Prada, Paul Smith, Anna Sui and Brooks Brothers.
The MSCI China Index, whose 84 members include H shares of Hong Kong-listed mainland companies, beat the MSCI Emerging Markets Index's 29 percent increase in 2006 after two years of underperformance.
Returns in China may be harder to come by this year.
H shares of mainland companies now trade at 19.4 times forecast earnings after starting the year at 11.9. Shares in the MSCI Emerging Markets Index trade at 15.4 times future company earnings. Stewart Paterson, Credit Suisse Group's regional equity strategist in Hong Kong, said he's 'very cautious' about Chinese stocks because they're expensive.
Sponsor Results:
