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China turmoil: where savers should invest their cash instead

china markets stocks investing
china markets stocks investing

Chinese stocks have tumbled as protests erupted across the country in reaction to strict lockdown measures.

The Shanghai Composite Index has fallen 0.8pc while China's blue-chip CSI 300 Index is down 1.1pc.

The country’s “zero covid” policy has weighed heavily on consumer and business sentiment while also hampering growth projections for the world’s second-largest economy. Analysts at Oxford Economics are predicting that a delayed reopening of the economy could cut one percentage point off the country's GDP next year.

DIY investors with money in China are preparing for further stock market falls and investment experts warned the country may not be the safest place for their money right now.

Rob Morgan, of wealth manager Charles Stanley, said: “China remains an area to largely avoid in terms of direct exposure. The uncertain regulatory environment is exceptionally difficult to navigate.”

So where should investors turn instead?

Andy Merricks, of wealth manager 8AM Global, said investors who still want exposure to emerging markets but are looking to move away from China could consider HanETF’s Frontier Markets ETF, which allows investors to benefit from the growth of e-commerce sectors in frontier and emerging markets such as Mexico, Thailand, Turkey and United Arab Emirates. The fund's largest holding is leading Latin American e-commerce company MercadoLibre.

Jason Hollands, of stockbroker Bestinvest, meanwhile, said the key alternative emerging market to China was India.

“As China has lurched in an increasingly hard-line direction under President Xi, and has persisted with its “zero covid” policy, India looks set to be a major beneficiary as companies seek to diversify their manufacturing supply chains,” he said.

India has experienced a prolonged period of political stability, Mr Hollands said, that has propelled the country up the global rankings for ease of doing business. It has also invested heavily in digitalisation and infrastructure which should boost its economic prospects.

Mr Hollands said: “Investors wanting a pure-play India fund might consider the Ashoka India Equity Investment Trust which is managed by White Oak Capital Partners, headed up by Prashant Khemka, who formerly managed Indian equities at Goldman Sachs.”

However, he said most investors should choose exposure to India via broader emerging markets or Asian equity funds.

Mr Hollands added: “One of our top picks is the Aubrey Global Emerging Markets Opportunities fund, which focuses on the growth of the emerging market consumer as a core theme. The fund currently has 41.8pc invested in Indian stocks including Varan Beverages, which bottles and distributes drinks (including for PepsiCo), and financial services firm Bajaj Finance.”

Another potential beneficiary of China’s economic hardships is Vietnam.

Mr Merricks said: “Its property businesses and food and drinks sector might be able to capitalise on a slowdown in China.”

Investors interested in Vietnam could try VinaCapital’s Vietnam Opportunity Fund, which invests in leading companies such as Vinhomes, the country’s largest commercial real estate developer, and Quang Ngai Sugar, a food processing company.

However Mr Merricks said investors should bear in mind that all emerging markets have been suffering due to the strength of the dollar. Emerging markets are highly reliant on foreign investment which can dry up when the American currency gains in value. It also makes it more expensive for emerging markets to pay back their debts.

Investors who still want access to the economic benefits of Chinese consumption growth should remember they can achieve this indirectly through developed markets, Mr Morgan said.

He recommended Vanguard’s FTSE Developed Asia Pacific ex Japan UCITS ETF, which invests mostly in Australia, South Korea and Hong Kong, with some exposure to Singapore and New Zealand. Mr Morgan said: “It captures the region’s most developed capital markets, and therefore much of the halo effect of Chinese consumption growth.”

But he added that UK investors should not overlook their own market. “UK valuations are low owing to widespread investor disdain,” he said. “More importantly, investors may be underestimating the potential for dividend payouts to increase.

“Earnings are healthy, dividend cover is high and the make-up of the UK market, with its skew towards energy, commodities and generally well-capitalised financials, should be relatively resilient during a period of rising interest rates.”

For investors who want a UK-focused fund that adopts a value approach, Mr Morgan recommends Man GLG Undervalued Assets.