Investing in China's assets and related financial products proved highly popular among foreign investors in the past three years, fuelling a steep bull run that lasted till the middle of last year.
Since then, sharp sell-offs on China's bourses, the weakening of the yuan and fears over a sharp slowdown or even recession in the Chinese economy have caused investors to take a cautious attitude towards Chinese assets.
The Sunday Times highlights the performance of various China-related investments in recent years and how one can still invest in the growth, albeit a slowing one, in the world's second-largest economy.
CURRENCY It was popular to invest in offshore-yuan fixed deposits with banks, said Mr Marc Lansonneur, DBS Bank's head of investment products in Singapore.
From 2013 to last year, the offshore yuan appreciated 12 per cent against the Singdollar, and its deposit rates were higher than here, at 3 to 4 per cent.
However, the offshore yuan has been depreciating rapidly, losing 6 per cent against the Singdollar in the past six months.
The outlook for the offshore yuan is not positive, said Mr Lansonneur.
CHINESE EQUITIES - ETFs AND UNIT TRUSTS The Chinese equity market's performance has been disappointing so far this year, said iFast assistant director for research and content Ho Song Hui.
The offshore Chinese equity market - also known as H-shares - is measured by the Hang Seng Mainland 100 Index.
It slumped 14.9 per cent in Singdollar terms in the first six weeks of this year.
On the other hand, their onshore counterparts, known as the A-shares and measured by the CSI 300 Index, posted larger losses of 22.2 per cent in the same period.
Taking a look at returns over a longer three-year time frame, A-shares have delivered annualised total returns of 7.2 per cent while H-shares were essentially flat, said Mr Ho.
While it may appear that the H-shares have lagged behind their onshore counterparts over the past three years, H-shares posted a better rate of return until early December 2014.
From then on, the A-share market outperformed on the back of speculation by highly leveraged retail investors, said Mr Ho.
This bull run in Chinese stock markets also attracted the interest of many investors, said Mr Lansonneur. Investors were using exchange-traded funds (ETFs) or unit trusts and sometimes buying A-shares, thanks to the Shanghai-Hong Kong Stock Connect scheme launched in 2014, he said.
Those who invested earlier - at the start of or in the middle of the bull cycle - were able to take profits before the sudden drop last July.
For those who remain invested, it was an unhappy outcome, with a double-digit negative return.
SingCapital chief executive Alfred Chia noted that the China equity ETFs have been on a downtrend for almost a year.
"The performance (of the ETFs) closely mirrors China market benchmarks," said Mr Chia.
Mr Lansonneur observed that unit trusts that are more actively managed delivered better performances than the passive ETFs.
Mr Ho shared the view, pointing out that while the headline indices have not done well, several of the China equity funds have outperformed the H-share market where the majority invest.
"The FSM China Equity index managed to deliver a three-year annualised return of 0.9 per cent, outperforming the offshore market's zero returns," said Mr Ho.
Some actively-managed funds also significantly outperformed the indices. For example, the Neuberger Berman China Equity Fund and the Wells Fargo China Equity Fund have outperformed the H-shares index without suffering the same amount of volatility as the A-shares market, said Mr Ho.
Both funds are predominantly invested in H-shares but with the flexibility to invest in onshore equities as well, he added.
Mr Chia noted that there are many good-quality Chinese companies that are profitable and pay good dividends.
"These are stocks which many Chinese retail investors don't focus on," he said.
So, investing through good fund managers who understand the Chinese markets and have the resources to select such quality companies have become even more important, he added.
While the Chinese stock market presents great potential over the long run, Mr Chia thinks that it is suitable only for investors with appetite for high risk, as it remains a highly volatile market.
Mr Lansonneur said DBS' view on Chinese equity is neutral.
He said: "For investors keen on building a stake, they should do so by investing regularly to mitigate volatility, and through selective unit trusts, which provide necessary market expertise and investment discipline."
CHINESE BONDS AND BOND FUNDS
Weaker fundamentals and market sentiment have also hurt bond prices in general. But it is not all doom and gloom for the Chinese bond market, said Mr Lansonneur.
Some sectors have been holding up rather well in the recent market downturn.
In general, investment-grade bonds have outperformed the high-yield sector, he added.
"Bond issues of corporates like Alibaba, Tencent, state-owned enterprises such as China Unicom, and infrastructure bonds have been relatively resilient amid the recent turmoil."
Chinese property bonds, which were very popular for the past three years, have been affected by both weaker demand and a looming supply of housing projects, especially in the lower-tier regions.
That said, bonds from major companies like Poly Real Estate and Franshion are still performing well.
In general, Chinese bonds denominated in United States dollars have outperformed those denominated in the yuan.
This article was first published on Feb 14, 2016.
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