Indians lap up China-focused MFs

© Provided by The Times of India

Mumbai: Indian investors are pouring money into China-focused mutual funds even as a regulatory crackdown by Beijing has knocked off over $1 trillion from the combined market capitalisation of tech giants like Alibaba and Tencent this year. Though a niche category with only two fund houses — Edelweiss and Axis — offering these schemes, assets under management (AUM) have continued to rise despite negative returns this year (see graphic).

Axis Greater China Equity fund, which was launched in February this year, has seen its AUM grow 4 times to Rs 120 crore in August from about Rs 30 crore in February-end, even as NAV fell by 14% in the same time. Edelweiss Greater China Equity Off-Shore Fund has seen its AUM grow 62% to Rs 1,808 crore in August from about Rs 1,119 crore at the end of 2020, even as the net asset value (NAV) fell over 6% in the same period. Both have the fund of funds (FoF) structure, where the capital is invested in underlying schemes, which in turn buy stocks in China, Hong Kong and Taiwan (greater China region).

“We are getting inflows consistently…smart investors are adding more, a lot of people were waiting on the fence to invest in China. July was one of the best months for inflows in the greater China fund. Even August and this month has seen good flows,” said Niranjan Avasthi, head of products, marketing and digital at Edelweiss MF.

Axis MF too is seeing a steady rise in investor interest and its fund has recorded net inflows since inception. “The biggest category in the fund are mature investors, who have the understanding about what is the role of allocation to China in their portfolios. Informed investors are also aware that though the China market has given decent returns, it has been highly volatile historically,” said Ashwin Patni, head of products and alternatives at Axis MF.

The Edelweiss fund has about 20% exposure to the technology sector, which is facing the brunt of the regulatory crackdown. “China wants to cut down monopolies, chart clear paths along with some social aspects. The China story is shifting from export-driven economy to domestic-driven…mainland China market is also getting added to emerging market indices, because of which global inflows will increase further,” Avasthi said, adding that the pain in the tech sector should smoothen out in a year.

“China has a very high-growth environment. But it is also a market that has a very heavy trader component, that is why we see very big ups and downs from time to time. So, investors who come without this context can be put off,” Patni said. Currently, global funds are a small space, China is even smaller. However, investment in international markets will increase gradually and can reach 10% of equity allocation in a few years, according to Patni.

A Goldman Sachs report released last week also quoted economists saying that China is still investable as regulations aren’t likely to structurally impair companies’ earnings.

The Edelweiss fund, launched in 2009, has posted a return of 20% (compounded annual growth rate, or CAGR) in the last 5 years, which has helped attract investors looking for better returns in the last one and a half years. The AUM of the Edelweiss fund has jumped from about Rs 152 crore at the start of the pandemic to over Rs 1,800 crore this month.

On Friday, Sachin Bansal-backed Navi Mutual Fund too filed for a China-focused FoF with markets regulator Sebi, which would make it the third such mutual fund scheme in India.

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