With much of China’s economy in shutdown, companies across Asia have had to suspend operations.
Gripped by fears over the outbreak of coronavirus, China’s main indices, since they re-opened after Chinese New Year, have taken a beating. This has also been felt by open-ended funds. Of the 38 funds in the Investment Association universe that are focused on Chinese equities, only three are in positive territory since the start of 2020.
However, with China’s economy such an important component of the global economy, fears have spread to other markets, as can be seen by the table below showing the 10 worst performing funds since the start of the year.
Notably, the three worst performing open-end funds so far in 2020 have all been energy focused. Schroder Global Energy has lost 11.52% since the start of the year, Guinness Global Energy -10.59% and Meridian Global Energy -6.56%.
According to Ryan Hughes, head of active portfolios at AJ Bell: “Concerns around the impact the outbreak will have on the growth of the global economy and China in particular, is leading to fears that there will be lower demand for natural resources.”
The price of a brent crude barrel of oil has decreased by around 18% since the start of the year.
Funds in the Asia and emerging market sectors also took a hit. Of the 112 funds in the Investment Association’s Asia ex-Japan sector, just 18 were in the black. Similarly, just 26 of the 114 emerging market funds have produced a positive return for the year.
Other funds that have struggled include AB Asia Ex Japan Equity Portfolio (-6.01%) and Barclays Global Access Asia Pacific Ex-Japan (-5.6%). Waverton Asia Pacific (-5.19%), also part of the Asia Pacific ex-Japan sector, was also included in the 10 worst performers for the year so far.
Two emerging market funds were included in the worst 10: Artemis Global Emerging Markets, with a loss of 5.29%, and Barclays Global Access Emerging Market Equity, with a loss of 5.22%.
Many of these funds, alongside having direct holdings in Chinese equities, hold Asian companies that are part of supply chains which include Chinese factories. With much of China’s economy in shutdown, many of these firms risk having to also suspend operations. Most notably this has already happened to Hyundai plants in South Korea.
Hughes, however, cautions against an overreaction from investors. He notes: “While it may be tempting to head for the exit, long term investors should remember that it is time in the market more than timing the market that is important.
“If we look back to the SARS outbreak in 2002 – 2003, it had a short term negative impact on markets but once the outbreak had been contained, markets recovered very quickly. Investors selling at the first sign of short term volatility therefore lock in losses that have already been incurred and then miss the bounce back once things have calmed down.”
|Fund||IA Sector||Performance from 01/01/20 - 04/02/20|
|Schroder Global Energy||Global||-11.52%|
|Guinness Global Energy||Global||-10.59%|
|Meridian Global Energy||Global||-6.56%|
|AB Asia Ex Japan Equity Portfolio||Asia Pacific ex-Japan||-6.01%|
|Barclays Global Access Asia Pacific Ex-Japan||Asia Pacific ex-Japan||-5.60%|
|ASI China A Share||China/Greater China||-5.35%|
|New Capital China Equity||China/Greater China||-5.31%|
|Artemis Global Emerging Markets||Global Emerging Markets||-5.29%|
|Barclays Global Access Emerging Market Equity||Global Emerging Markets||-5.22%|
|Waverton Asia Pacific||Asia Pacific ex-Japan||-5.19%|