Recovering from Steep Plunge in 2018
Chinese funds, which showed a steady decline last year, have been recovering from the beginning of this year. They made some 20 percent of loss last year but are now making a double-digit return rate this year. Renewed optimism over the trade negotiations between the United States and China and expectations for the Chinese government’s economic stimulus plans are the decisive factors. While the predominant view in the market is that the earnings rate will rise further, there is still a cautious voice.
The average earnings rate of 146 Chinese funds in 2019 stood at 14.48 percent as of Feb. 22, according to fund rating firm Korea Fund Rating on Feb. 24. The figure is higher than the earnings rate of domestic equity-type funds at 8.89 percent and overseas equity-type funds at 10.90 percent over the same period.
A large amount of money is flowing into the Chinese stock market thanks to the rally. An expert of the stock market said, “With the Chinese stock market rally, more than 40 billion won (US$35.53 million) of money flew into Chinese funds since the beginning of the year. This is in stark contrast to last year when the rate of return plunged to minus 23.79 percent.”
Chinese fund investors were anxious last year as they continuously made a double-digit loss. A dark cloud casted over the Chinese stock market last year incurred loss upon loss of related funds. The escalating trade dispute between the United States and China was the main cause of a sharp drop in earnings rate of Chinese funds.
However, the Shanghai Stock Exchange Composite Index has changed the direction after the beginning of the year. The index, which fell to the 2,400 level, had a steady increase and surpassed the 2,800 level. The figure went up by more than 12 percent compared to the beginning of the year. The Shenzhen Stock Exchange Composite Index also showed a rebound and increased by over 15 percent. This is largely due to the fact that the tension over the trade dispute between the United States and China has recently been eased.
Experts have a bullish outlook for the market in the future. They are looking to economic stimulus plans to be discussed at the Chinese People's Political Consultative Conference to be held on March 3 and the National People's Congress on March 5. In particular, investments are expected to rebound as well when the government’s control is confirmed through stronger policies after the two meetings.
However, some analysts advise investors to be careful of an excessively optimistic outlook. Choi Sul-hwa, an analyst from the Korea Investment & Securities Co., said, “Economic stimulus plans which exceed market expectations are unlikely to be announced at the two meetings, and a sense of wariness to uncertainties can stand out due to the announcement of business indicators for January and February in March, the Q1 results of listed companies in April and exchange rate reports.
Park Ok-hee, an analyst with IBK Investment & Securities Co., said, “While optimism is growing over the trade negotiations, there are still a lot of uncertainties. Investors should be careful in that Chinese economic indicators are exposed to downside risk, which was hidden by the effect of the Chinese NewYear.”