Jupiter’s Teverson: Don’t write off China
Ross Teverson, Jupiter’s head of Strategy, Global Emerging Markets, and manager of the Jupiter China Fund, comments on the recent stock market volatility in China.
There is often an over-simplification when people talk about the Chinese stock market. The most dramatic headlines focus on volatility in the A-share market, which is largely driven by domestic investors, and that can sometimes cloud the opportunities available to investors in other types of Chinese shares.
In our opinion, yesterday’s market movements were the result of a coming together of a number of factors: the negative PMI data point came at a time when there has been growing awareness that the lock-up of a lot of large A-share investors is coming to an end later this week, and those negatives in combination with the absence of any new easing measures from the government have clearly spooked domestic investors.
In our opinion the attempts to control market volatility, such as the circuit breakers that have been put in place and the measures making it relatively easy for individual companies’ shares to be suspended, while aimed at reducing market volatility, can actually have the effect of increasing volatility at certain times.
Jupiter’s Asia-focussed funds (the Jupiter China Fund and Jupiter China Select SICAV, the Jupiter Global Emerging Markets fund and Jupiter Global Emerging Markets Unconstrained SICAV, and Jupiter Asian Fund and Jupiter Asia Pacific SICAV) get their exposure to China through companies listed in Hong Kong and Taiwan, and also US-listed China stocks, which has to some extent insulated the funds from some of the more dramatic market movements.
Indeed, it is worth highlighting that in 2015 as a whole, the Jupiter China Fund made a positive return of 5.5%. If you look at the backdrop to the year it would perhaps be surprising to investors that a dedicated China fund could generate a positive absolute return, but even if you look at the MSCI China Index, against which most China funds are benchmarked, while it was a negative year, in my view it was not as weak as a lot of the headlines led investors to believe.
As bottom-up investors we don’t make an index forecast. What we do believe, however, is that there are a number of companies doing business in China which are continuing to take market share from sometimes multi-national competitors, and where the end-market for their products continues to grow. For these companies we believe the earnings outlook remains bright. China is a multi-faceted economy with a lot to offer investors who are willing to look beyond the negative headlines and focus instead on company fundamentals.