Chinese dragons, roaring returns and best-selling funds

Blink and you miss it. That is the hugely volatile Chinese stock market rally over recent weeks and Wednesday’s slump, which brought the dragon back down to earth.

At the start of this week shares jumped by over 10% as trading started after the Golden Week holiday. BANG! But then fell straight back again after the country’s economic planners hosted a news conference and gave a very underwhelming show, with some noises about some spending projects and some ‘bond issuance’ and blah blah. CRASH. The audience wanted rockets and they got a sparkler.

What’s going on?

At the end of September, the Chinese central bank cut rates and unveiled a support package for property and stock markets, as the world’s second largest economy was spluttering. The property sector has been slow and consumer sentiment - and spending – is poor.

The announced measures seemed to do the trick. This Tuesday, the CSI 300 index (which tracks the biggest 300 Shanghai and Shenzhen listed shares) was up a whopping 33% over the month (where was my crystal ball, people?! Sob...).

But all good things come to an end (or at least pause) and on Wednesday this week it fell by 7%, its biggest one day fall since February 2020 when the world woke up to Covid.

What’s next?

Tomorrow there is a finance ministry press conference in China focussed on “intensifying countercyclical” adjustments to fiscal policy (you think that sounds confusing in English, just imagine listening to it in Mandarin!).

If you want to give the economy a shot of Viagra, you can use monetary policy – cut interest rates and let banks lend more. They’ve already done this. And then there is fiscal policy which is being outlined tomorrow – announcing big Government spending plans and/or adjusting taxes, so people do more and spend more.

No-one quite knows what to expect. Analysts are divided on how big the additional fiscal stimulus will be – some expect 2 trillion yuan and others are hoping for 10 trillion. And will this be enough to restore confidence after the huge damage inflicted by the pandemic, the meltdown in the property sector and President Xi Jinping flexing more muscle over the business landscape? Add to this the looming threat of the Orange Manbaby becoming US president soon and a potential massive trade war... the picture for China remains hugely uncertain.

Where there is uncertainty, there is volatility and massive price swings. And where there are big price swings, people can make money. Billions of dollars will be won or lost over this news which could be a bazooka or a feather duster.

It’s not just the Big Boys making these bets…

The best-selling funds and investment trusts with British retail investors in September include some China picks for the first time in a while, with Fidelity China Special Situations and Baillie Gifford China Growth making an appearance. These are volatile plays – down 25% and 39% over the last three years respectively. But up 29% and 32% over the last month!

Across the Himalayas, the Indian stock market has been having a much better time, and Jupiter India still features amongst the best-selling funds. Stock markets are a fascinating mirror of what a country gets up to – if we compare the largest holdings in best-selling India funds compared to China funds, India is a story of oil, ciggies and banking whereas China is about entertainment, social media and shopping.

Aside from regional plays, the main story for investors continues to be AI and the all-powerful ‘S&P 500’ (the collection of the largest 500 shares you can trade in the US). Those nervous about the dominance of stellar stock Nvidia, and interested in a different take, might like to read this piece reflecting the views of the managers of the Mid Wynd International Investment Trust on the buzz around this giant chipmaker. “We certainly do not discount the power of AI, but we believe the market is ascribing most of its value to Nvidia alone, rather than to the many companies that are poised to benefit from this transformative technology. We expect that as the market realises the impact of AI beyond a handful of companies, it will broaden out, and a strategy such as ours, focused on financial productivity and valuation, will benefit in a more normalised market environment”. Whether this will or will not happens is quite literally the billion dollar question of 2024.

You can see all of the recent best-selling funds, trusts and Exchange Traded Funds here.

Have a great weekend everyone. My favourite story of this week was the glitch in the BBC weather app which reported winds of 13,508 mph in London and overnight temperatures of 404C in Nottingham. It certainly wasn’t 404 degrees at 7.30 this morning as I threw myself into the Solent!

Holly

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