Emerging market funds are back in form

Saltydog has bought a China fund to take advantage of strong momentum.

For the last couple of months, our main focus has been UK funds. In November, the UK Equity Income sector had the largest return and last month it was UK Smaller Companies. The UK All Companies sector has also had a good run. These sectors are in our ‘Steady as She Goes’ Group and over the last 12 weeks have seen returns ranging from 15.9% to 18.1%.

Until recently the UK Smaller Companies sector also had the best returns over four weeks. However, in our analysis last week the China/Greater China sector had moved into the lead, having gone up by 8.9% in the last four weeks.

The Global Emerging Markets sector was in second place, with a four-week return of 7.4%, and the combined Asia Pacific including Japan and Asia Pacific excluding Japan sectors were not far behind with a four-week return of 7.2%.

In the past, the emerging market sectors have been more volatile than the UK equity sectors. This means that we would only consider investing in them if their recent performance suggests that they are generating significantly greater returns. That has certainly been the case over the last four weeks.

Last week, our ‘Ocean Liner’ demonstration portfolio invested in the New Capital China Equity fund.

Funds listed in the table: New Capital China Equity, JPM China, Baillie Gifford China, ASI China A Share Equity, Allianz China A-Shares Equity, Barings Hong Kong China

It was at the top of our 26-week performance table for this sector, and has also done well over four and 12 weeks. In the last 12 months, it has gone up by nearly 80%.

China was the only major global economy that managed to grow in 2020. In the last three months of the year, GDP went up by 6.5%, which lifted the annual growth rate to 2.3%. Although that is the lowest figure for more than 40 years, it is still an impressive performance when you consider the disruption caused by the Covid-19 pandemic.

The International Monetary Fund has forecasted that the Chinese economy will grow by 7.9% this year. If that is the case, then it would seem likely that some of the funds investing in China will do well.

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