China’s stock market resurgence and the most-bought funds

We reveal what's behind the Red Dragon's recent boom and the most-popular funds investing there.

Chinese stocks have experienced somewhat of a resurgence in recent days as positive economic data from the region fuels investor optimism amidst Covid-19 market recovery.

CSI 300 index of Shanghai and Shenzhen listed blue chip companies rose for a sixth straight day to close at a more than five-year high on Tuesday. Overall, the CSI 300 has risen more than 14% over the past six sessions.

This could arguably be something of a head scratcher for investors following China, given numerous concerns.

Rebecca O'Keeffe, Head of Investment, interactive investor, says: “Shrugging off potential concerns about rising American Covid-19 cases, and ignoring worries about a wide range of US-China political tensions including Huawei and Hong Kong, Chinese markets pushed sharply higher on Monday, with mainland shares closing at multi-year highs.  

“Why the unexpectedly strong rally?  Recent economic data is certainly supportive of a potential trigger, but undoubtedly local investor sentiment is moving from a recovery phase to outright bullishness, and this has been encouraged by recent comments from state media emphasizing the benefits of a “healthy” bull market.  In the past, periods of perceived state-sanctioned bullishness have been able to propel Chinese shares to vertiginous levels, as was shown by the 2014-15 rally, suggesting that rational economic explanations to justify the rise may be largely unnecessary for local investors as long as they are confident that prices will keep going up.

“Investors in general are reaping the rewards of being invested, with global central banks pulling out all the stops to support the market. The Chinese authorities are going one step further in actively encouraging ordinary retail investors to buy. The hope for them, and foreign investors in China, is that the market will continue to grow and that this will ultimately be supported by underlying profitability and results rather than positive soundbites.”

Most-bought Chinese funds on interactive investor in June 2020

Dzmitry Lipski, Head of Fund Research, interactive investor, says: “We continue to rate Fidelity China Special Situations Trust (LSE:FCSS) as an adventurous option which offers a broader diversified exposure to Chinese equities including H and A shares. The trust is managed by Dale Nicholls since April 2014, who focuses on faster growing, consumer-orientated companies with robust cash flows and capable management teams.

“The manager constructs a diversified portfolio of 130-140 high quality stocks from the bottom up and is likely to have a bias to under-researched small and mid-cap space, which looks set to benefit id the Chinese market continues on its bull run. He is also allowed to invest in unquoted stocks and use gearing to enhance the trust performance. The trust boasts a strong performance track record, considerably outperforming the broader MSCI China index over the past five years (130% vs 90%) and 10 years (247% vs 149%).”