Edelweiss MF asks investors with surplus cash to invest in China Fund

Recent regulatory clampdowns on industries such as private tutoring and online gaming, and financial troubles with Evergrande, a real estate developer, have caused sharp declines in Chinese markets as well as global markets. However, the Edelweiss note dismissed these concerns regarding the prospects of its FoF.

“The Edelweiss Greater China Equity Offshore Fund is an open-ended fund of the JPMorgan Funds – a fund scheme consisting of the Greater China Fund that invests in companies in the People’s Republic of China, Hong Kong and Taiwan. The bond rating of the Evergrande Group has been downgraded. The recent incident and the crackdown on China’s gaming sector have prompted short-term volatility in Chinese markets. Evergrande is neither with the JPMorgan Greater China Fund nor with any JPMorgan Emerging Markets or Asia funds. In fact, the fund manager’s formal do not cover Evergrande as a company because of quality issues and its inability to generate free cash flow,” said a note issued by Edelweiss Asset Management. It further said that the Chinese government may allow omissions but they will be ‘systematic’ in nature.

The JPMorgan Greater China Fund counts Taiwan Semiconductor, Tencent and Alibaba Group Holding Ltd as its top three holdings, with weights of 10.01%, 8.98% and 6.32%, respectively.

As of note, Internet companies like Tencent are enjoying an improved tax rate that is subject to review every 3 years. It added that the preferential rate may not continue forever, but will increase gradually.

“Investors with a long-term horizon are advised to be patient as fund managers see this volatility as transitory. In fact, investors who have surplus cash should invest more and further strengthen their position in the fund.”

Edelweiss Fund has assets under management ₹1,838 crores. Launched in 2009, it was previously a JPMorgan fund. However, Edelweiss AMC acquired JP Morgan Asset Management in India in 2016. The fund has given returns of 16.15%, 18.96% and 23.51% in the last 10, 5 and 3 years, outperforming the S&P BSE 500 in all those time periods. Although Chinese stocks have fallen in the last year, while Indian stocks have seen a strong jump. As a result S&P BSE 500 has a return of 56.57% compared to 12.38% for Edelweiss Greater China Equity Offshore Fund.

Apart from Edelweiss Greater China Equity Offshore Fund, there are a few other Indian mutual funds that have investments in Chinese stocks. Axis Greater China Equity Fund of Funds was launched on 11 February 2021 and currently has assets of ₹121 crores. It is down 15.80% since launch. It feeds into the Schröder International Selection Greater China Fund. The latter tech companies are also counted among top holdings such as Taiwan Semiconductor, Alibaba and Tencent.

Nippon India Hang Seng is another scheme with exposure to BES China, a passive fund that tracks Hong Kong based Hang Seng Index and is down 14.16% in the last 6 months. However this doesn’t count Evergrande among its top holdings. Navi Mutual Fund, which is part of the Sachin Bansal-owned Navi Group, has applied for a feeder fund with SEBI to track the MSCI China Index.

However, the fund has not started yet. “One event should not change your asset allocation in China or elsewhere. If China is part of your global asset allocation, stay tuned. Amol Joshi, founder, Plan Rupee Investment Services, said, “The same happens if you have US or Europe funds. I don’t think a real estate or banking crisis in China will directly affect the Indian banking or financial system. However It can affect market sentiment in the short term. However, it should not be a reason to make any investment decision,” he said.