China-specific funds launched by Indian mutual fund companies to cash in on China’s growth story have reported lower returns in the past one year compared with other categories of funds. These funds raised money from Indian investors and invested the entire corpus in listed stocks of Chinese companies.

At present, there are three China-specific funds and returns from these schemes are very low. Total money routed to China through these mutual funds amounted to Rs 3,040.18 crore. A majority of these funds have invested in the financial sector, comprising banks, life insurance and real estate companies. These sectors have performed badly due to the fear of a slowdown in China.

Fear of monetary tightening and a slowdown in exports have led to contraction in the Chinese stock market. China’s Shanghai Index is down over 11 per cent to 2,610 points on August 27 compared to 2,946 points around this time last year. The Hang Seng index climbed 1.74 per cent to 20,597 compared with 20,242 around this time last year. Sensex is trading at 17998.41, 14.05 per cent up from 15781 levels last year.

JP Morgan’s JF Greater China Equity Offshore Fund has reported 6.88 per cent return. Fortis India-China Growth Fund has given –4.50 per cent return while Mirae Asset China Advantage Fund has reported negative return at –2.22 per cent since inception.

“China’s GDP was growing at over 10 per cent in the first half of 2009, but since the second half of 2009, growth has slowed down due to concerns related to non-performing loans and a drop in property prices. This has led to a correction in the market. But the market looks attractive now,” Arindam Ghosh, head of retail sales at JP Morgan Asset Management, said.

“The Chinese market has underperformed compared with the Indian market. Hence, returns offered by India-focussed funds have been higher than China-specific funds,” Amit Nigam, senior portfolio manager of equities at Fortis Investments, said.

JP Morgan’s JF Greater China Equity Offshore Fund’s total size is Rs 2,938 crore. Launched in September 2008, it has given 5.08 per cent return in the last one year. JP Morgan JF Greater China Fund invests is China, Hong Kong and Taiwan. “We are overweight on China. In terms of valuation, the Chinese market looks attractive,” Ghosh said.

Fortis China Fund’s total size is Rs 78.69 crore. The return in last one year has been 11.17 per cent. The fund invests both in Indian and Chinese stocks. Mirae Asset’s China Advantage Fund’s size is Rs 23.49 crore.

Anil Rego, CEO of investment advisory and wealth management firm Right Horizons, says the Chinese market underperformed all global markets.

“This was due to the excessive curbs. The Chinese government was trying to cool off the economy and this led to 20 per cent drop in realty prices. But the Chinese market can turn around over the next few months. One needs to have a long-term horizon, at least three years, to invest in China-focussed funds,” said Rego.