[Real Estate Investment] Top 5 Chinese Funds Sweep Returns... Leading Investments Again This Year

Highlighting China Stock ETF Performance Compared to the US
Emerging Markets Worth Watching More Than Developed Countries

[Asia Economy Reporter Oh Ju-yeon] Last year, due to the aftermath of the US-China trade dispute and a decline in corporate earnings, domestic equity funds posted a disappointing return of around 3%. In contrast, Chinese funds experienced explosive growth of up to 80%, sweeping all top five spots in returns. Securities experts unanimously agree that this year, emerging markets, especially the Chinese stock market, deserve close attention over developed countries. The analysis points to China’s fastest economic recovery, upcoming infrastructure investment plans, and potential liquidity expansion measures such as further reserve requirement ratio cuts, which enhance the relative attractiveness of the Chinese stock market. Exchange-traded funds (ETFs) that allow indirect investment in the Chinese stock market from Korea are showing visible returns compared to the end of last year.

◆ Reasons to Expect from the Chinese Stock Market = With the US and China finally signing the Phase One trade agreement, the trade war that began in July 2018 with US tariffs on Chinese products has officially entered a truce. Along with this, China’s designation as a currency manipulator was lifted. Experts note that risks that had weighed down global stock markets have somewhat eased, leading to increased attention on the Chinese stock market.

The US stock market has already risen sharply, so despite expectations for global economic improvement, it is likely to slow down in the short term. This year, Standard & Poor’s (S&P) 500 corporate earnings are projected to increase by 9.6%, but the valuation reflecting this exceeds 18 times, which is considered burdensome. Therefore, rather than continuously increasing equity exposure, a neutral stance is advisable. On the other hand, the Chinese stock market is seen as more positive for improving returns due to easing trade tensions, economic recovery from improved global demand, economic stimulus from monetary and fiscal policies since early this year, and attractive high valuations.

Ha Jae-seok, a researcher at NH Investment & Securities, said, "Last year, ETFs investing in US and China A-shares performed well, while emerging market ETFs excluding China generally underperformed. However, since the fourth quarter, emerging stock markets have shown relative strength alongside global economic recovery and a weaker dollar." He emphasized, "The US stock market has recently surged, causing some price pressure, so now is the time when the attractiveness of Chinese ETFs compared to the US stands out."

◆ Last Year’s Highest Returns Were Chinese Funds = Last year, most Chinese equity ETFs recorded favorable performance. According to financial information provider FnGuide, as of December 31 last year, among domestic funds with assets under management exceeding 1 billion KRW, Chinese-related products dominated the top ranks in returns over one year. The top performer was 'Mirae Asset TIGER China A Leverage' with a return of 80.28%, followed by 'Korea Investment KINDEX China Mainland Leverage CSI300' (78.80%), 'Mirae Asset China Mainland' (61.03%), 'KB China Mainland A-Share Leverage' (60.29%), and 'Mirae Asset China A Leverage 1.5' (60.26%).

This year, it is analyzed that investing in ETFs with a high proportion of growth stocks from the Shenzhen Stock Exchange and consumer goods in the Chinese stock market will be advantageous.

Kim Sun-young, a researcher at DB Financial Investment, said, "In recent years, it was 'because of China,' but this year, I expect it to be a year 'thanks to China,'" adding, "A positive atmosphere is expected to continue for the time being." First, following the Chinese government’s reserve requirement ratio cut on the 6th, there is a strong outlook for further cuts, which will expand liquidity supply compared to last year. Also, although the Phase Two trade agreement signing may take some time, it is unlikely that conflicts between the two countries will intensify for the time being. Park Hee-chan, a researcher at Mirae Asset Daewoo, said, "The US’s aggressive stance toward China may be limited until the November presidential election."

◆ Chinese ETFs Expected This Year = Since May last year, the Chinese stock market, which had been range-bound, is now attempting to break out. The Shanghai Composite Index rose to 3,288 points in April last year but then retreated to around 2,800 points. However, the index, which was at 2,880 points in early December, jumped to 3,106.82 as of the closing price on January 14 this year.

Hana Financial Investment expects China’s economy this year to show a recovery similar to 2016, driven by a rebound in infrastructure investment, confirmation of export bottoming, and inventory cycle recovery. Researcher Kim Kyung-hwan analyzed, "The rebound in the first half will be led by real estate, some automobile sectors, and export value chains," and forecasted the Shanghai Composite Index’s expected range in the first half to be 3,050 to 3,480 points.

NH Investment & Securities suggested increasing exposure to the Chinese stock market this year and noted that not only overseas-listed Chinese ETFs but also domestically listed Chinese ETFs could be good alternatives. Among ETFs listed domestically, those tracking the CSI300 such as 'KINDEX China Mainland CSI300,' 'TIGER China CSI300,' and 'KODEX China Mainland CSI300' have relatively high liquidity and the advantage of no currency exchange needed. These ETFs have already posted returns of around 3% compared to the end of last year. KINDEX China Mainland CSI300 rose 3.01% from the closing price on December 30 last year to the closing price on January 16 this year, TIGER China CSI300 increased by 3.86%, and KODEX China Mainland CSI300 went up by 3.71%.

Park Sang-hyun, a researcher at Hi Investment & Securities, said, "With the signing of the Phase One trade agreement, there is a growing possibility that the Chinese economy will shift from being a risk factor to a momentum driver for the global economy and financial markets."

This content was produced with the assistance of AI translation services.