Do i need a China fund in my portfolio??

83705628

bowlhead99 said:

tcallaghan93 said:

george4064 said:

I tend to agree with others that on average it would be foolish to exclude China from your portfolio, and again similar to others I have exposure to China via a broader emerging markets fund.

I actually hold JPMorgan Emerging Markets Investment Trust PLC which has about 39% in China. At a portfolio level that equates to circa 3.9% exposure of my entire portfolio in Chinese equities which I'm comfortable with.

/
3.9% seems acceptable, about the sameasyou'd get in that HSBC FTSE all world fund.

Yes, just a different allocation, as they'll use judgement in the JPM active fund versus an HSBC or Vanguard index approach of just taking the index allocations within the world tracker (the latter being a cheaper way to do it, but picking up all the chaff with the wheat). 

As it happens, JPM really like Alibaba and Tencent so they account for about 40% of the China money within JPM's emerging fund, while those companies only represent 32% of FTSE's China allocation within an Asia or Emerging or All-World tracker.  Still, even if JPM's EM fund were 10% of your portfolio and 40% of it was China and 39% of that was those two companies, the percentage of your portfolio that ends up in the two companies combined would only be about 1.5%.   Whereas if you used an All-World tracker to give your allocation (and still had approx 4% in China by following that route), you'd have about 3% in each of Apple and Microsoft which is a pretty significant concentration too. 

There's no definitive reason for Tencent or Alibaba to do any worse than (e.g.) Apple over the next decade.  Though the points about poor legal structure, corporate governance and political influence in China are quite valid.  (obviously Apple's fortunes aren't entirely immune to political interference either).

/
I disagree with this idea from AnotherJoe that it's random, that you can consider all companies equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies. Chinese companies are not the same, China does not have the same culture, ethics, institutions, attitudes, legal system, regulation, governance or history when it comes to business and investing. It's a fundamentally different, and I would argue much, much riskier proposition than the US, for example.
If anyone's interested, any of Peter Zeihan's videos or books explain it better than I do, although he is more of an entertainer that a serious investment guru.

coyrls

tcallaghan93 said:

bowlhead99 said:

tcallaghan93 said:

george4064 said:

I tend to agree with others that on average it would be foolish to exclude China from your portfolio, and again similar to others I have exposure to China via a broader emerging markets fund.

I actually hold JPMorgan Emerging Markets Investment Trust PLC which has about 39% in China. At a portfolio level that equates to circa 3.9% exposure of my entire portfolio in Chinese equities which I'm comfortable with.

/
3.9% seems acceptable, about the sameasyou'd get in that HSBC FTSE all world fund.

Yes, just a different allocation, as they'll use judgement in the JPM active fund versus an HSBC or Vanguard index approach of just taking the index allocations within the world tracker (the latter being a cheaper way to do it, but picking up all the chaff with the wheat). 

As it happens, JPM really like Alibaba and Tencent so they account for about 40% of the China money within JPM's emerging fund, while those companies only represent 32% of FTSE's China allocation within an Asia or Emerging or All-World tracker.  Still, even if JPM's EM fund were 10% of your portfolio and 40% of it was China and 39% of that was those two companies, the percentage of your portfolio that ends up in the two companies combined would only be about 1.5%.   Whereas if you used an All-World tracker to give your allocation (and still had approx 4% in China by following that route), you'd have about 3% in each of Apple and Microsoft which is a pretty significant concentration too. 

There's no definitive reason for Tencent or Alibaba to do any worse than (e.g.) Apple over the next decade.  Though the points about poor legal structure, corporate governance and political influence in China are quite valid.  (obviously Apple's fortunes aren't entirely immune to political interference either).

/
I disagree with this idea from AnotherJoe that it's random, that you can consider all companies equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies. Chinese companies are not the same, China does not have the same culture, ethics, institutions, attitudes, legal system, regulation, governance or history when it comes to business and investing. It's a fundamentally different, and I would argue much, much riskier proposition than the US, for example.
If anyone's interested, any of Peter Zeihan's videos or books explain it better than I do, although he is more of an entertainer that a serious investment guru.

Take a breath before you post.  The post you're quoting is not from AnotherJoe and it doesn't say it's "random", in fact it says:

the points about poor legal structure, corporate governance and political influence in China are quite valid

83705628

coyrls said:

tcallaghan93 said:

bowlhead99 said:

tcallaghan93 said:

george4064 said:

I tend to agree with others that on average it would be foolish to exclude China from your portfolio, and again similar to others I have exposure to China via a broader emerging markets fund.

I actually hold JPMorgan Emerging Markets Investment Trust PLC which has about 39% in China. At a portfolio level that equates to circa 3.9% exposure of my entire portfolio in Chinese equities which I'm comfortable with.

/
3.9% seems acceptable, about the sameasyou'd get in that HSBC FTSE all world fund.

Yes, just a different allocation, as they'll use judgement in the JPM active fund versus an HSBC or Vanguard index approach of just taking the index allocations within the world tracker (the latter being a cheaper way to do it, but picking up all the chaff with the wheat). 

As it happens, JPM really like Alibaba and Tencent so they account for about 40% of the China money within JPM's emerging fund, while those companies only represent 32% of FTSE's China allocation within an Asia or Emerging or All-World tracker.  Still, even if JPM's EM fund were 10% of your portfolio and 40% of it was China and 39% of that was those two companies, the percentage of your portfolio that ends up in the two companies combined would only be about 1.5%.   Whereas if you used an All-World tracker to give your allocation (and still had approx 4% in China by following that route), you'd have about 3% in each of Apple and Microsoft which is a pretty significant concentration too. 

There's no definitive reason for Tencent or Alibaba to do any worse than (e.g.) Apple over the next decade.  Though the points about poor legal structure, corporate governance and political influence in China are quite valid.  (obviously Apple's fortunes aren't entirely immune to political interference either).

/
I disagree with this idea from AnotherJoe that it's random, that you can consider all companies equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies. Chinese companies are not the same, China does not have the same culture, ethics, institutions, attitudes, legal system, regulation, governance or history when it comes to business and investing. It's a fundamentally different, and I would argue much, much riskier proposition than the US, for example.
If anyone's interested, any of Peter Zeihan's videos or books explain it better than I do, although he is more of an entertainer that a serious investment guru.

Take a breath before you post.  The post you're quoting is not from AnotherJoe and it doesn't say it's "random", in fact it says:

the points about poor legal structure, corporate governance and political influence in China are quite valid

/
I know I mean bowlhead's point about considering Tencent and Alibaba as comparable/equivalent/substitutes for US tech companies is a misnomer for the reasons I gave. I would caution people against being blind to geography because of our "modern global economy".

Prism

The risks in investing in China are for the most part embedded in the price. India is expensive, Brazil and China middle of the road and Russia cheaper still. Developed markets like the US and UK are quite a bit more expensive. I am basing this on forward PE. 

bowlhead99

tcallaghan93 said:

bowlhead99 said:

tcallaghan93 said:

george4064 said:

I tend to agree with others that on average it would be foolish to exclude China from your portfolio, and again similar to others I have exposure to China via a broader emerging markets fund.

I actually hold JPMorgan Emerging Markets Investment Trust PLC which has about 39% in China. At a portfolio level that equates to circa 3.9% exposure of my entire portfolio in Chinese equities which I'm comfortable with.

/
3.9% seems acceptable, about the sameasyou'd get in that HSBC FTSE all world fund.

Yes, just a different allocation, as they'll use judgement in the JPM active fund versus an HSBC or Vanguard index approach of just taking the index allocations within the world tracker (the latter being a cheaper way to do it, but picking up all the chaff with the wheat). 

As it happens, JPM really like Alibaba and Tencent so they account for about 40% of the China money within JPM's emerging fund, while those companies only represent 32% of FTSE's China allocation within an Asia or Emerging or All-World tracker.  Still, even if JPM's EM fund were 10% of your portfolio and 40% of it was China and 39% of that was those two companies, the percentage of your portfolio that ends up in the two companies combined would only be about 1.5%.   Whereas if you used an All-World tracker to give your allocation (and still had approx 4% in China by following that route), you'd have about 3% in each of Apple and Microsoft which is a pretty significant concentration too. 

There's no definitive reason for Tencent or Alibaba to do any worse than (e.g.) Apple over the next decade.  Though the points about poor legal structure, corporate governance and political influence in China are quite valid.  (obviously Apple's fortunes aren't entirely immune to political interference either).

/
I disagree with this idea from AnotherJoe that it's random, that you can consider all companies equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies. Chinese companies are not the same, China does not have the same culture, ethics, institutions, attitudes, legal system, regulation, governance or history when it comes to business and investing. It's a fundamentally different, and I would argue much, much riskier proposition than the US, for example.
If anyone's interested, any of Peter Zeihan's videos or books explain it better than I do, although he is more of an entertainer that a serious investment guru.

I don't know what "idea from AnotherJoe that it's random" you're referring to, as he's not on this thread, and companies around the world are not equivalent because they participate in different industries and have customers with different demographics while being exposed to different political and economic risks. 

In the part of the thread you're quoting, I am agreeing with you that there are some issues with corporate governance, legal stuff and political stuff when you look at China vs developed world. However, they have a billion people and are a significant global power, so it's a bold choice to exclude them. 

If like the OP had originally suggested, he didn't have a global fund taking an allocation to China (because his global fund was ex-emerging markets), it would make sense to add some exposure for the longer term. And if deciding to add China, it would be worth considering an actively managed fund so that at least you were getting exposure to companies where someone with a sense-checking process had considered the various legal, regulatory, political, cultural etc risks, rather than using the 'buy whatever exists and is large' process adopted by an index fund.

However, OP later clarified that he did actually have another previously unmentioned global index fund that included emerging markets in its arsenal, which will have some level of China exposure, although that global index fund is only a particular portion of his total global equities funds, and his global equities index funds are only a particular portion of his funds portfolio overall, and so he may not have a great deal of China exposure within the portfolio. Other than some companies elsewhere in the world selling to China, or being exposed to costs of Chinese products; while 'cost exposure' is not really what an international investor seeks, it's profit or asset exposure that should be sought to improve diversification.

The reason that adding a reasonable chunk of China would improve diversification compared to not adding China is that as you mention, companies should not all be considered "equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies". If you buy the ones which are not domiciled or primarily earning in China you will be missing a reasonable slug of the world economy, which may be a growing omission over time.  China as an economy is perhaps under-represented in world indices because of the proportion of their domestic companies that are not available in free float for foreign purchasers.  A problem stemming from that is that the bits of it that are represented in an index (e.g. large retailers, tech companies, banks or insurance companies mentioned) may not be as representative - or may not have as attractive prospects - as what might really be on offer if you allowed a fund manager to go digging for it.

83705628

bowlhead99 said:

tcallaghan93 said:

bowlhead99 said:

tcallaghan93 said:

george4064 said:

I tend to agree with others that on average it would be foolish to exclude China from your portfolio, and again similar to others I have exposure to China via a broader emerging markets fund.

I actually hold JPMorgan Emerging Markets Investment Trust PLC which has about 39% in China. At a portfolio level that equates to circa 3.9% exposure of my entire portfolio in Chinese equities which I'm comfortable with.

/
3.9% seems acceptable, about the sameasyou'd get in that HSBC FTSE all world fund.

Yes, just a different allocation, as they'll use judgement in the JPM active fund versus an HSBC or Vanguard index approach of just taking the index allocations within the world tracker (the latter being a cheaper way to do it, but picking up all the chaff with the wheat). 

As it happens, JPM really like Alibaba and Tencent so they account for about 40% of the China money within JPM's emerging fund, while those companies only represent 32% of FTSE's China allocation within an Asia or Emerging or All-World tracker.  Still, even if JPM's EM fund were 10% of your portfolio and 40% of it was China and 39% of that was those two companies, the percentage of your portfolio that ends up in the two companies combined would only be about 1.5%.   Whereas if you used an All-World tracker to give your allocation (and still had approx 4% in China by following that route), you'd have about 3% in each of Apple and Microsoft which is a pretty significant concentration too. 

There's no definitive reason for Tencent or Alibaba to do any worse than (e.g.) Apple over the next decade.  Though the points about poor legal structure, corporate governance and political influence in China are quite valid.  (obviously Apple's fortunes aren't entirely immune to political interference either).

/
I disagree with this idea from AnotherJoe that it's random, that you can consider all companies equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies. Chinese companies are not the same, China does not have the same culture, ethics, institutions, attitudes, legal system, regulation, governance or history when it comes to business and investing. It's a fundamentally different, and I would argue much, much riskier proposition than the US, for example.
If anyone's interested, any of Peter Zeihan's videos or books explain it better than I do, although he is more of an entertainer that a serious investment guru.

I don't know what "idea from AnotherJoe that it's random" you're referring to, as he's not on this thread, and companies around the world are not equivalent because they participate in different industries and have customers with different demographics while being exposed to different political and economic risks. 
AnotherJoe's criticism of my "UK bias" is that I'm just picking a random bunch of companies that happened to land in the UK.
Your comment indicates that US and Chinese tech companies can be considered comparable - I disagree with that for the reasons I gave above.

In the part of the thread you're quoting, I am agreeing with you that there are some issues with corporate governance, legal stuff and political stuff when you look at China vs developed world. However, they have a billion people and are a significant global power, so it's a bold choice to exclude them. 

Whether you buy a UK, developed world, or fully global equity index fund, you'll get plenty of exposure to China via those companies' earnings so you're hardly missing out on the Chinese economic miracle by not holding Chinese companies. Hence my answer to the question about the need to invest in Chinese companies being no.

If like the OP had originally suggested, he didn't have a global fund taking an allocation to China (because his global fund was ex-emerging markets), it would make sense to add some exposure for the longer term. And if deciding to add China, it would be worth considering an actively managed fund so that at least you were getting exposure to companies where someone with a sense-checking process had considered the various legal, regulatory, political, cultural etc risks, rather than using the 'buy whatever exists and is large' process adopted by an index fund.
Aside from my UK home bias, if you're going to own the world I agree you may as well on the whole world. I disagree with you on the active management point, and your criticism that index funds buy whatever is large and exists (the market does that, index funds follow the market), as I'm an indexer but that's a whole other debate.

However, OP later clarified that he did actually have another previously unmentioned global index fund that included emerging markets in its arsenal, which will have some level of China exposure, although that global index fund is only a particular portion of his total global equities funds, and his global equities index funds are only a particular portion of his funds portfolio overall, and so he may not have a great deal of China exposure within the portfolio. Other than some companies elsewhere in the world selling to China, or being exposed to costs of Chinese products; while 'cost exposure' is not really what an international investor seeks, it's profit or asset exposure that should be sought to improve diversification.
We could debate how to weight this til the cows come home, by market cap, earnings, nominal GDP, GDP PPP. Any UK, developed world or fully global equity index fund will have ample exposure to the Chinese economy through those companies' earnings, and benefit from their cheaper costs or production in keeping their costs down too.

The reason that adding a reasonable chunk of China would improve diversification compared to not adding China is that as you mention, companies should not all be considered "equivalent regardless of their domicile, jurisdiction, currency denomination or primary earnings geographies". If you buy the ones which are not domiciled or primarily earning in China you will be missing a reasonable slug of the world economy, which may be a growing omission over time.  China as an economy is perhaps under-represented in world indices because of the proportion of their domestic companies that are not available in free float for foreign purchasers.  A problem stemming from that is that the bits of it that are represented in an index (e.g. large retailers, tech companies, banks or insurance companies mentioned) may not be as representative - or may not have as attractive prospects - as what might really be on offer if you allowed a fund manager to go digging for it.
Same point as above, and 

/
Credit Suisse have some interesting commentary on China:

"China:

Just as developed markets are dominated by the huge US equity market, China is far the largest EM. Its weight in the EM indexes has grown rapidly from just 3% in the early 2000s to 30% today.
By the end of 2018, Chinese equities had an aggregate full-cap value of some USD 10 trillion.
Despite China’s outstanding economic growth, global investors in Chinese stocks have received returns just in line with other EMs or DMs. Meanwhile, domestic Chinese A-shares have underperformed.
There have been large divergences between share price indices in China. Dependent on which index is followed, the benchmark for stock market performance varies greatly and investors have struggled to select the best measure.
The negative factors that have contributed to the Chinese market’s past poor performance are set to be reversed, as China continues to open up and reform its financial system including the expansion of A-share inclusion into leading index series.
China will, and should, remain an EM until it resolves international investors’ concerns over its markets and access to them. Investors need markets to be categorized in ways that reflect investability and accessibility."
https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-global-investment-returns-yearbook-2019-201902.html#:~:text=%20Credit%20Suisse%20Global%20Investment%20Returns%20Yearbook%202019,and%20have%20enjoyed%20a%20real%20or...%20More%20

And the latest SPIVA report does show some support for the theory that because of the uniqueness and relative inefficiency of Emerging markets, active management can do slightly better vs the "index funds are better" theory, than in saturated developed markets, with better survivorship, fund and asset-weighted returns than £ denominated global and US equity funds, and 85% being beaten by the index vs 95% of £ denominated global equity funds and 97% of £ denominated US equity.

csgohan4

At the end of the day, there is no best % of China you should hold in your portfolio, it's what's comfortable with you and your strategy investment. Some people want china heavy, some just a few % points on their Global fund. 

If you have enough capital it would seem wise to have a certain amount of  China/Asia  exposure to diversify your portfolio. how much is personal preference and how much risk you want to take on

DairyQueen

I choose not to ignore the world's second biggest economy (forecast to become number 1 within a decade). Mr DQ is all for selling our China fund for ethical reasons but I am not an ethical investor. Yes, our global core passives hold a few percent in China but this market is one which I believe benefits from active management.

So...

One of our satellite funds is Fidelity China Special Situations. The name is a bit of a misnomer as many Chinese companies are listed on the HK and US markets. Unsurprisingly it holds big slugs in Tencent and Alibaba. Less than 2% of our portfolio but it has done rather well recently.

Every dog has his/her day. That's the name of the game with diversification.

C_Mababejive

Regarding global trackers such as i have in my SIPP,,as they can be traded very cheaply or free albeit with perhaps 24 hours inertia or so, could there be value in buying and selling it on the dips or in response to global situations/markets? I mean if youve got a decent profit going why not sell and rebuy? obviously the difficulty is knowing when but why sit and watch a profit turn into a loss?

bowlhead99

C_Mababejive said:

I mean if youve got a decent profit going why not sell and rebuy? obviously the difficulty is knowing when but why sit and watch a profit turn into a loss?

Well, you're right that when buying or selling on what with hindsight turns out to be a good dip or peak, 'the difficulty is knowing when'. If it were obvious we would all be doing it.

If it gets cheaper, and you have some spare money, then sure, buy away, although you may well find you could have bought it cheaper if you waited until another time and if you pile all your money in when it dips 5% you may be annoyed you no longer have all that money available by the time it gets to 30 or 40 or 50% cheaper; while if you deliberately only put a small fraction in on the dip, and the market goes up while you kept the bigger fraction sitting on the sidelines uninvested, you will make returns of 0 on that idle cash which will be a drag on your overall returns. 

If you know it is going to go down, then sure, sell up and take the profit, but risk being annoyed that it doesn't really go down much after all and the market simply moves higher again without you.

The short answer is it's difficult to time the market, even though some people have made great fortunes doing so; others have made great losses or simply missed the great returns they'd have got by staying fully invested. And if timing the market is difficult, timing the market using open-ended funds for which orders must be placed 'blind' in advance of a future pricing point is even more difficult.