by Susan Edmunds
Jonathan Wu, associate director and head of distribution and operations at Premium China Funds Management, is in New Zealand to speak at the Meet the Managers and Perfecting Investment Portfolios events run by Heathcote Investment Partners and The Investment Store.
But he said he would urge advisers not to put their money into his firm's Premium China Fund at the moment. It invests in listed companies in Hong Kong, mainland China and Taiwan, as well as companies with business interests or significant customer bases in the region.
Chinese markets were hit by a significant downturn in the middle of last year and another period of volatility in the first quarter of 2016.
The fund is down 14.6 per cent over three months, down 14.7 per cent over six months and down 18.4 per cent over a year.
Since its launch, it has returned 142.5 per cent, annualised to 8.9 per cent.
But Wu said the average investor performance in the fund had been negative. “People don’t know when to get in and get out. It tends to be counterintuitive.”
Some advisers had put client money in in March last year, despite warnings that the Chinese market could be overvalued, Wu said. "The outcome of that is you see people go in at the worst time and then sell at the worst time."
He said the fund was in a trough position but he would urge advisers not to invest client money for the next quarter. “I think it will go flat at best. I think the worst of the volatility is behind us but I don’t think it’s anywhere near over. But for the next quarter, do nothing.”
He said now was a good time for advisers to start doing their due diligence on a Chinese investment with a view to taking action later in the year.
“Advisers need to consider when to get into China because China is a tactical play. If advisers went into the fund in 2014, including riding it all the way up and then down again, they would be up 10 per cent now.”
Wu's team were expecting little to no earnings growth in the market.
Wu said the markets were in a position where their behaviour was completely separated from the economic performance, instead driven by things such as indications of the future interest rate trends from the US Federal Reserve.
"For the next quarter there is no catalyst for a rally in Chinese equities. We will have to wait until June when the Federal Reserve has its next big meeting to see an indicator."
If it looked like the US was taking a slower hiking track than expected that could cause money to flow back into emerging markets.
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