Rediscover China equity funds (Fund Digest January 2023)

Is China now worth another look?

After about three years of isolation due to the pandemic, China ended its zero-Covid policy in December 2022 and reopened its borders in January 2023. Leisure and business travel has resumed, and people are adjusting to life in the “new normal”. Markets welcomed the reopening with open arms — Chinese equity and fixed income markets made a V-shaped bounce, and the upbeat sentiment also spread into the broader Asian and emerging-market regions.

In January, the MSCI AC Asia ex-Japan Index, which captures large and mid-cap stocks in Asian markets such as Hong Kong, Singapore, China, and India, rose 5.32% from a month ago. Similarly, the MSCI China Index increased by 11.72% from the previous month.

This pleasant surprise in the markets has nudged commentators to raise their growth forecasts for China in the Year of the Rabbit. Estimates suggest that China could grow more than 6% in 2023, spurred by recovering domestic consumption and the following investment rebound. Chinese policymakers, recognising the need to restore investor confidence, have also introduced measures to support key growth sectors.

Nonetheless, even as the markets rebound rapidly, valuations of Chinese equities remain attractive, reflecting a compelling entry point for long-term investors.

As the chart below shows, the MSCI China Index price-to-book (P/B) ratio — which measures the price relative to the book value of the stocks that make up the benchmark index — remains relatively low despite the recent rebound. The P/B ratio is hovering around 1.45 times as of end January. Historical data shows that if you enter the market at P/B ratios of 1.35-1.55 times, you are likely to obtain an annualised return of 10.8% after five years.

Against this backdrop, we would like to take the opportunity to highlight a selection of China-themed funds on the Endowus Fund Smart platform.

Spotlight on China-focused funds

For a quick overview of all the funds available on Endowus Fund Smart, refer to our investment funds list here. 

Customise your ideal investment portfolio in minutes with Fund Smart. The Endowus Fee for Single Fund Goals via Fund Smart (Cash, CPF, and SRS) is 0.3% p.a., reinforcing our commitment to reduce the cost of investing. This pricing means that more than 95% of the funds are now cheaper on Endowus than on any other fund platform, bank, private bank, financial advisor, or broker in Singapore.

Not sure how to invest with Fund Smart? Find out everything you need to know in our FAQs. If you wish to invest in an accredited investor-only (AI-only) fund or a non-SGD fund, please contact support@endowus.com. 

Prefer to leave the fund selection to the experts? Consider the Endowus China Equity Satellite Portfolio, which has been optimised by the Endowus Investment Office to achieve the best balance of China equity funds in a single portfolio. Check it out here.

Understanding onshore and offshore China securities

Before investing in the Chinese markets, it’s a good idea to understand the differences between A-Shares, Greater China, and All China stocks.

Chinese equities can be broadly divided into two categories: the onshore market and the offshore markets. 

The onshore market typically refers to the Shanghai and Shenzhen Stock Exchanges, and stocks that trade on these exchanges are commonly known as China A-Shares. There tends to be high participation from retail investors, which makes it relatively volatile and unsophisticated. Given this so-called “market inefficiency”, the onshore market has been a favourite for active institutional investors to leverage their sophisticated insights to generate alpha. This is especially so ever since China A-Shares were made accessible to foreign investors in 2015. 

Investors in the Chinese onshore market may also face the direct consequences of government regulations — bringing about risks and opportunities in various sectors such as real estate, technology, electric vehicles, and renewable energy.

The offshore markets include not only the Greater China markets — such as Hong Kong, Taiwan, and Macau — but also Chinese-domiciled companies listed elsewhere in the world, such as the US bourses or even the Singapore Exchange (SGX).

What are the differences between China A-Shares, Greater China, and All China?

Read more:

• China — better fortunes to come?
• Endowus Satellite Portfolios: On China equities — a 2022 update
• Endowus Fund Smart Highlights 2022 — Year in Review

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