The ongoing volatility in the Chinese stock markets has affected Indian Mutual Funds (MFs) that invest in China and its related regions. The Net Asset Value (NAV) of such MFs has declined sharply. For example, Edelweiss Greater China Equity Off-shore Fund of Fund (FOF) was down 4.16 per cent on Monday, while the NAV of Axis Greater China Equity FOF fell 2.95 per cent on Tuesday. Explain that apart from Chinese companies, these funds invest in firms in Hong Kong and Taiwan. That’s why they are called the Greater China Fund.
Why this fall
The Nippon India ETF Hang Seng BeES, which tracks the Hong Kong Exchange’s benchmark Hang Seng Index, declined 4.19 per cent on Tuesday. But the important question is why did these funds fall? A sell-off in Chinese stock markets was fueled by increased regulatory actions by Chinese government agencies against technology majors and, more recently, a moratorium on foreign capital in after-school tutoring companies.
What investors to do
Market experts are asking to be cautious about Chinese funds at this time. According to a Moneycontrol report, the Vice Chairman of First Global said that the policy of the Chinese government is clear and the recent situation at Ant Financial (Alibaba Affiliate Company) was a sign in this direction. They have cut their investments in China from February-March 2021 onwards. They have reduced investment in Chinese funds from 12-15 per cent to two per cent.
Others have different opinions
However, according to another fund manager, the regulatory actions need not be seen as a campaign by the Chinese government against its domestic tech sector. A few years ago, China took regulatory action against its chemical companies to control pollution. Then they were forced to move their plants. Governments can take regulatory decisions to control certain areas.
Trouble for the short term
It is also being speculated that the current action unfolding in China is of short-term. This will only cause problems in the near future. In the meantime, the Chinese government would like to fix some areas of regulation. The situation may return to normal after the rest. But for now the Chinese stock market may fall further. Because the Chinese government is strict about technology companies. These companies contribute significantly to China’s benchmark indices.
Keep 10-15% investment intact
According to experts, there is no point in withdrawing your money due to the current volatility, as it happens in equity investments. But if you have a specific investment in China, keep in mind that this is a fixed portion of your total exposure to international equities. Overall you can invest 10-15% of your money in international equities.
