Ignore volatility, invest additional liquidity in a Chinese fund: Edelweiss MF

Recent regulatory crackdowns in industries such as private lessons and online gaming, as well as financial issues with Evergrande, a real estate developer, have caused Chinese markets as well as global markets to fall sharply. However, the Edelweiss note dismissed these concerns about the prospects of its FoF.

“The Edelweiss Greater China Equity Offshore Fund is an open-ended fund of funds that invests in JPMorgan Funds – Greater China Fund which invests in companies in the People’s Republic of China, Hong Kong and Taiwan. The recent episode of downgrading of the Evergrande group’s bond rating and the reprimand of the Chinese gaming sector have led to short-term volatility in the Chinese markets. Evergrande is not owned by JPMorgan Greater China Fund or any of the JPMorgan Emerging Markets or Asia funds. In fact, fund managers do not officially cover Evergrande as a company due to quality issues and its inability to generate free cash flow, ”says a note issued by Edelweiss Asset Management. be of an “orderly” nature.

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

According to the note, internet companies like Tencent enjoy a preferential tax rate that is subject to review every 3 years. The prime rate might not last forever but will see gradual increases, he added.

“Investors with a long-term horizon are urged to be patient as fund managers view this volatility as transitory. In fact, investors who have available cash should invest more and strengthen their positions in the fund, ”the note said.

The Edelweiss Fund has assets under management of ??1,838 crores. Launched in 2009, it was previously a JP Morgan fund. However, Edelweiss AMC acquired JP Morgan Asset Management in India in 2016. The fund has generated returns of 16.15%, 18.96% and 23.51% over the past 10, 5 and 3 years, outperforming the S&P BSE 500 over all these periods. Over the past year, however, Chinese stocks have fallen while Indian stocks have rebounded strongly. As a result, the S&P BSE 500 posted a return of 56.57% against 12.38% for the Edelweiss Greater China Equity Offshore fund.

Besides the Edelweiss Greater China Equity Offshore Fund, there are a few other Indian mutual funds that have exposure to Chinese equities. Axis Greater China Equity Fund of Funds was launched on February 11, 2021 and currently has assets of ??121 crores. It is down 15.80% since launch. It funds the Schroder International Selection Greater China Fund. The latter also has technology companies among its main holdings such as Taiwan Semiconductor, Alibaba and Tencent.

Nippon India Hangseng BeES is another program with exposure to China. It is a passive fund that tracks the Hong Kong-based Hang Seng Index and has lost 14.16% in the past 6 months. However, he does not count Evergrande among his main holdings. Navi Mutual Fund, which is part of the Navi group owned by Sachin Bansal, has applied for a feeder fund to track the MSCI China index with Sebi.

However, the fund has not yet been launched. “One event should not change your asset allocation in China or elsewhere. If China is part of your global asset allocation, stick around. The same is true if you have American or European funds, ”said Amol Joshi, founder of Plan Rupee Investment Services. “I don’t think a real estate or banking crisis in China will directly affect the Indian banking or financial system. affect short-term market sentiment. However, this should not be a reason for making an investment decision, ”he added.