Eastern promise fulfilled on stock markets

GIVEN THE turmoil in developed markets, investors might consider looking East.

According to MoneyMate, by September 10th Irish gross domestic funds invested in Chinese equities have returned 12.7 per cent on average this year, or 22.6 per cent over the previous 12 months.

However, a currency bounce from the weakening euro, rather than a strongly performing local market, is behind much of the gains, as most Chinese funds are priced originally in dollars.

With a particularly strong performance, Standard Life’s Synergy China Equity is leading the table, having returned 18.2 per cent so far this year, and 26.9 per cent over the previous 12 months.

Magdalene Miller, investment director of the fund, puts the strong performance in the year to date down to “stock selection”, particularly in the healthcare and consumer discretionary sectors.

One of the fund’s best performers has been pharmaceutical firm United Laboratories.

“We look for companies where something is changing, either in terms of industry structure, corporate behaviour or improvement in cash-flow,” Miller says, pointing out that the fund is overweight in the information technology and healthcare sectors, but underweight in financials, due to the “policy risk” associated with Chinese banks.

The fund’s biggest holding is in Tencent Holdings, an instant messaging service provider that makes up about 5 per cent of the fund.

Looking ahead, Miller is bullish about prospects for the fund into the short to medium-term, highlighting China’s positive demographics and the fact consumption will continue to be a big trend.

However, she adds, the fund has sold out of “crowded” areas such as sportswear, preferring instead sectors such as auto, internet and healthcare.

“As people get more affluent, they’re looking for better quality of life so are spending more on healthcare and education.”

While it may be the worst performer in the category, Quinn Life’s China Freeway is nonetheless producing some decent returns, and is up by 7 per cent to September 10th, and by 9.8 per cent over the last 12 months.

FUND FOCUS CHINA EQUITY

Best performer YTD:

Standard Life Synergy China Equity + 18.2%

Worst performer YTD:

Quinn Life China Freeway +7%