Investment trust insider on JPMorgan Chinese

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on JPMorgan Chinese

Election fever is upon us, although I suspect that, for most of us, it’s a case of when will it end? At least in the UK we will hopefully put the campaigning behind us in a month. In the US voters have just under a year of political squabbling to contend with before they go to the polls on 3 November 2020.

Ascribing any kind of cunning plan to president Trump is probably foolhardy, but one thing I have wondered is whether he’ll have the sense to resolve the trade dispute with China in time for this to have a positive impact on the US economy in the run-up to the election.

There have been many false dawns in the trade negotiations but the recent news that some tariffs might be lifted has provided a fillip to US markets. Trump seemed happy to claim this as a personal victory, forgetting that he caused the problem in the first place!

In China, data suggests the tariffs have exacerbated the slowdown of the economy. Given that and the unrest in Hong Kong, you might think that trusts exposed to the country would be struggling. However, one of my best performing investments this year has been JPMorgan Chinese (JMC), which was shortlisted though did not win a Citywire Performance Award recently.

Its net asset value (NAV) including dividends paid has leaped 37.4% in the past 12 months, with shareholders receiving a total return of 38.6% due to a modest tightening in the discount, now around 12%.

That performance is well-ahead of rival Fidelity China Special Situations (FCSS), which is up 12.3% and 14.7% respectively, and quite a long way ahead of the MSCI China index, JMC’s benchmark.

Hopes of an easing of the trade war have helped this year as have the measures that China has taken to try to stimulate its economy, but MSCI’s decision to accelerate the inclusion of domestic Chinese stocks (A-shares) in its emerging markets index series has had the biggest impact.

The MSCI China used to feature Chinese stocks listed in Hong Kong, the US and those listed in China but traded in foreign currencies and aimed at international investors. However, the vast majority of A-shares traded on the Shanghai and Shenzen exchanges were excluded from the mainstream family of MSCI indices.

By the start of 2019, just 5% of the market value of selected Chinese domestic stocks were present in these benchmarks. That is about to change dramatically. From 26 November, the weighting will jump to 20%, while China A-shares will become about 4% of the influential MSCI Emerging Markets index. As a result tracker funds and other investors have been piling in.

The effect of this can be seen in the contrasting fortunes of the MSCI China (up 11.5% over the first 10 months of 2019 in sterling terms), the MSCI Hong Kong index (up 14.1%) and the MSCI China A-Share index (up 22.9%).

JMC has a big weighting in A-shares. They accounted for about a third of the portfolio at the end of September, and this will be one reason for its strong returns. However, the managers have also got their stock selections right.

JMC had a bit of a shake-up in 2016, when it changed its benchmark from…   read more here