The second largest economy in the world crossed yet another
milestone in September. China has now become the world's largest
importer of oil. The U.S. Energy Information Administration (EIA)
said this week that demand has exceeded production by 6.3 million
barrels a day. The EIA also said that it expects "this trend to
continue through 2014."
The Spike in Auto and Oil Demand
This demand has come from the large spike in auto sales in recent
years. In fact, China is now also the largest auto market in terms
of numbers of vehicles sold. A recent slowdown in growth has
affected these numbers. But even so, sales have increased by 11% in
Even now, China still consumes a lower amount of oil per person
than the U.S. In September, China consumed 10.9 million barrels per
day, while U.S. numbers for the same period stood at 18.6 million
barrels. This means these numbers may increase further for an
economy which, interestingly enough, seems to be cooling down.
The Economic Environment
Once at the forefront of economic growth, the pace of China's
economic growth has been slipping recently. Growth numbers for the
first half of this year stood at 7.6%. This is significantly lower
than the rate of 9.3% achieved in 2011.
The fact is that China has been affected by the slowdown in the
U.S. and European economies. And now, Asian economies such as India
have also been affected. This has clearly impacted an economy
which has relied on external demand for its stunning prosperity.
New Policy Changes
Speaking at an Asia-Pacific business forum, the country's
President, Xi Jinping has said that the change in the pace of
growth "has on the whole been smooth." He added that this had come
as no surprise and that "the slowdown of the Chinese economy is an
intended result of our own regulatory initiatives."
He emphasised the need for structural changes to ensure long-term
economic development. Xi said that a slowdown in the pace of growth
was a price the country was willing to pay in order to move away
from a model based on exports and massive investments in
This is an extremely positive developments since it indicates that
despite the current weakness, the country's leadership is willing
to do what is necessary to moved towards a more sustainable model
Below we are presenting three mutual funds, each of which is
focussed on China and have high returns, as well as a Zacks
Rank #1(Strong Buy).
Mutual Fund Picks
Oberweis China Opportunities
Launched in October 2005, this fund has net assets of $158.04
million. It invests the majority of its assets in securities issued
from China. It may also invest in equity linked certificates
intended to provide exposure to foreign shares. The fund has a
year-to-date return of 28.95%.
The fund holds 74 assets and its top 10 holdings account for 30.42%
of its investments. Its top three assets are China State
Construction International Holdings Ltd., China Everbright
International Ltd. and
Spreadtrum Communications Inc.
(SPRD). The fund returned 51.75% over the last one year period and
has a Zacks Rank #1(Strong Buy).
This fund is much smaller, with total assets of 27.82 million and
was launched in February 2008. It aims to provide twice the daily
returns of the BNY Mellon China Select ADR Index. The fund
purchases securities, depositary receipts and derivatives that as a
combination provide such returns. It has a year-to-date return of
This fund holds a total of 48 securities. It is concentrated around
its top 10 holdings, which account for 41.83% of its assets. Its
top three assets are
China Mobile Limited
(CEO). The fund returned 42.19% over the last one year period and
has a Zacks Rank #1(Strong Buy).
Fidelity China Region
Launched in November 1995, this is the oldest and largest of the
funds with net assets of $1.4 billion. It invests heavily in
securities issued from Hong Kong, Taiwan and China as well as in
those with linkages to these areas. It focusses on acquiring common
stocks. This fund has a year-to-date return of 6.42%.
The fund holds 92 assets and its top 10 holdings account for 36.6%
of its investments. The asset it is most invested in is Taiwan
Semiconductor Manufacturing Co Ltd which makes up 5.74% of its
assets. The next two, Tencent Holdings Ltd and AIA Group Ltd
together make up 10.57% of its assets. The fund returned 27.21%
over the last one year period and has a Zacks Rank #1(Strong Buy).
Even though growth has slipped in the recent term and may remain
soft in the medium term, the Chinese economy is a good prospect in
the long run. This is why we believe these funds would make
excellent additions to your portfolio.
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