This region is flying, so we’re buying

Saltydog Investor has added a small holding in a fund that’s returned just over 30% over the past three months

 
As we approach the end of January, it’s fair to say that it has been a reasonable start to the year. More than 95% of the funds we track have gone up, and the leading ones have made double-digit returns.

The best-performing sector is China/Greater China, the next three are Technology & Technology Innovations, Asia-Pacific excluding Japan, and Global Emerging Markets.
 
The top 10 funds, based on their performance so far this year are:
 

Top 10 funds in 2023 (after four weeks)

_{Data source: Morningstar}

 
Our two demonstration portfolios (Ocean Liner and Tugboat) have gone up for the past four weeks in a row, and we have been gradually stepping back into the markets. They spent most of last year mainly in cash or money market funds.

A couple of weeks ago we made a small investment in the Invesco China Equity Fund fund, and it is already up 3.8%. It is at the bottom of the ‘Top 10’ table, based on its four-week return, but has been more consistent over 12 and 26 weeks.

The Investment Association’s China/Greater China sector has had a difficult couple of years. In 2021, when most sectors went up, it fell by 10.5% and last year it lost a further 15.9%. However, it did pick up towards the end of the year. It was the best-performing sector in November and December, gaining nearly 23%.

Last year, I highlighted the top 10 funds in November, and they were all from the China/ Greater China sector. The leading fund then, as it is now, was Templeton China with a one-month return of 28.3%. The table also showed its performance over the previous two months. It had gone down by 13.7% in September and 21.6% in October. These funds are definitely not for the faint-hearted.

Over the years, we’ve had mixed results with the funds we’ve held from the China/Greater China sector. Each time, the argument in favour of investing in China tends to be the same. Although it is already the second-largest economy in the world, behind the US, it continues to grow at rates that the rest of the developed world could only dream about. Last year it struggled because of its zero-Covid policy, but according to the UN still grew by 3.0% (the US went up by 1.8%). This year it is forecasted to grow by 4.8% and then a further 4.5% in 2024. Comparable figures for the US are 0.4% and 1.7%. For the UK, they are forecasting a drop of 0.8% this year and then growth of 1.0% next year.

China also has a large and rapidly growing middle class, which can drive its internal economy, so it is less dependent on exports.

My concerns at the end of last year were that although the relaxing of Covid restrictions should boost the economy, both internally through increased consumer spending, and externally as exporting recovers, would there be a U-turn? It seemed inevitable that infection rates would go up and that appears to be the case, however there is currently no sign of the government changing tack.

The problem with investing in China is that the Chinese Communist Party still has an enormous influence on the economy and it will do what it decides is in the best interest of the country. Sometimes that might help overseas investors and sometimes it might not. If it remains determined to see economic growth recover, then maybe the new Year of the Rabbit will be kinder to investors than the outgoing Year of the Tiger.
 
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