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Is now a good time to invest into China, as it emerges from COVID-19?

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"With China (well on the face of it) emerging from the COVID-19 nightmare, and its economy already up and running as the US, UK, and other countries are still battling, is now a good time to invest into China? What funds with equities that have a China focus are out there on the market? As a novice investor, I was looking at Vanguard's LifeStrategy 60% fund but know this is heavily geared towards the UK market. Any suggestions/thoughts would be most welcome!"

 

You say you are a novice investor. As such I suspect you will do little more than tie yourself into knots if you try to be ‘too clever’ about things and second-guess geopolitical, economic and pandemic outcomes. I think actually I’d say the same to a very experienced investor.

As always the very first thing to be clear on is your investment timeframes. Is this long-term stuff and general “I’m saving for 10 years+ just to be sensible and build a nest egg?” Or is it shorter-term and more like 5 years with a specific deadline? The answer to this will really point to your risk profile. If I talk to people in their 30s for example, who are saving into a pension (i.e. we’re talking 20 years+) , then I think they should start with considering 100% in shares/equities.

Just because you are a novice, doesn’t mean you should adopt a 60% equities mix – this is determined by timeframes rather than knowledge. On the other hand, you have to feel confident that you wont bottle it if things tumble by 30% as they did last month – and if you suspect you may not weather the more bumpy ride that a 100% shares portfolio gives you, then go for something less punchy. Even if logic suggests this will not make your money work as hard as it should.

Now – to China. Who knows is the honest answer? There could be a second outbreak, trade wars, an alien invasion – OK that was flippant, but you see the point. Trying to cherry pick regions is nigh impossible. The boring old truth is this is just about diversification.

If you think that the Vanguard option is too weighted towards the UK (the 60% Vanguard LifeStrategy fund currently has about 22% to the UK) then you could try to look for other ‘multi-asset’ funds which have a lower weighting to the UK. But here’s where it gets tricky. The FTSE100 companies are actually very global in nature – take HSBC for example. In 2019, 49% of their revenues came from Asia. And just 29% from Europe. So this is not a UK company by revenue source – it’s just listed on the British Stock Exchange. So that % allocation to the UK can be a little misleading.

If you really want to back a recovery in China – and your guess is as good as anyone’s – then you could always put the majority of your money in a multi-asset fund and allocate a small proportion to a fund with a higher weighting to Asia or indeed China. Many of the DIY platforms including Hargreaves Lansdown, AJ Bell Youinvest or Fidelity have good research you can read up on.

Holly

 

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