China and India equity funds shine in first half of 2017

The weakness in oil prices resulted in energy sector funds recording losses in the second quarter of 2017 and coming in at the bottom of the half-year performance table.
The weakness in oil prices resulted in energy sector funds recording losses in the second quarter of 2017 and coming in at the bottom of the half-year performance table.PHOTO: AGENCE FRANCE-PRESSE

From January to June, investors who put their money into China and India equity markets did well.

According to local unit trust distributor Fundsupermart, emerging markets and Asia outperformed their counterparts in the first six months of this year, with many equity funds in these markets maintaining their strong performance for the year to date.

While India equity funds were some of the strongest performers as a whole - owing to their stellar performance in the first quarter - they lagged behind their peers invested in China equity markets, posting an average 15.92 per cent return as compared with the FSMI China Equity Index's 16.5 per cent gain in the half-year ended June 30.

During the same period, the top China equity funds include Neuberger Berman China Equity Fund, which invests in both the onshore and offshore equity markets. It posted a strong return of 14.34 per cent in the second quarter, making a total return of 25.76 per cent in the first half of 2017. Another top China equity fund is Schroder ISF - China Opportunities SGD-Hedged.

Mr Kean Chan, assistant manager for research and portfolio management at Fundsupermart, noted that investor appetite for Chinese asset markets has gradually improved over the past few months despite policymakers' regulatory and deleveraging efforts, helping to support China's equity markets.

Turkey's equity market also rallied strongly in the second quarter, helping to propel the HSBC GIF - Turkey Equity Fund to the top of the table with a 28.57 per cent gain.

IMPACT OF OIL'S WOES ON ENERGY SECTOR

The global energy industry remained at the centre of investors' attention as crude oil prices fell from above US$50 per barrel to as low as US$42 per barrel over the quarter ended June 30.

Mr Chan said: "The volatility seen in oil prices affected the earnings prospects of companies from the energy sector, leading to a sell-off in their respective share prices and affecting equity funds invested in those areas."

As a result, energy sector funds recorded losses in the second quarter, coming in at the bottom of the half-year performance table.

Funds such as Investec Global Energy Fund (-20.52 per cent), Parvest Equity World Energy (-19.37 per cent) and BlackRock World Energy Fund (-19.08 per cent) posted losses in the first six months of the year.

Emerging markets such as Russia also took a hit from the weakness in crude oil prices, with its equity market seeing an 11.4 per cent loss in Singdollar price terms in the second quarter alone (17.4 per cent loss in the first half of the year).

This development weighed on the performance of equity funds invested in the Russian market, with funds such as HSBC GIF - Russia Equity (-13.38 per cent), Parvest Equity Russia (-11.97 per cent) and JPMorgan Russia Fund (-11.91 per cent) recording losses in the first half of the year.

Additionally, weakness in the prices of precious and base metals also affected the global mining industry, which negatively affected the overall performance of funds invested in resource-related equities.

MARKET OUTLOOK

As a whole, equity and bond markets continued their steady march higher in the second quarter of 2017, contributing to decent overall gains for the year to date, noted Fundsupermart.

While there was a 'mini sell-off' among the famous tech giants of Silicon Valley (Facebook, Apple, Netflix, Alphabet, Amazon, Microsoft) in mid-June that caused some risk aversion across financial markets globally, markets have held up well thus far, added Mr Chan.

Consequently, the MSCI AC World Index, representing the global equity market, inched higher to clock a 2.1 per cent gain in the quarter ended June 30, making year-to-date gains of 4.9 per cent.

On the other hand, bonds generally underperformed equity markets, with the JPM Global Aggregate Bond Index posting a 1.6 per cent return in the second quarter (-0.4 per cent return year-to-date).

Fundsupermart remains positive on the Asia ex-Japan region as corporate earnings continue to improve alongside ameliorating economic conditions.

"We advocate that investors continue to remain diversified, not just in terms of asset classes, but also across various market segments in fixed income and equity markets.

"This way, investors can reduce concentration risks and also capture various opportunities across the world," said Mr Chan.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on July 09, 2017, with the headline 'China and India equity funds shine in first half of 2017'. Print Edition | Subscribe