UK investors who have invested money in China have enjoyed a 19% return on their Chinese investment (ROI) over the last 6 months, according to a report according to a report by the Morningstar. The Asia pacific region came in second, which gave small cap company investors an ROI of 15%.
Investing in small cap companies offers very high returns opposed to investing in large cap companies. The reason behind this is because fund managers have more leeway to choose stocks that are not covered by research. When the news reveals which stocks are good potential investments, it can already be too late to make money out of them because their prices have already increased in value.
“Investor sentiment has remained incredibly positive in 2017 and this is reflected in the returns from high-risk sectors like Asia and emerging markets and smaller company equities,” said Patrick Connolly, in an interview with Investment Week.
China is still a cheap market to invest in despite the country being the centre of manufacturing products. According to UK economists, China has long-term growth areas, which led to it yielding good returns for investors over the last six months.
Darius McDermott, a financial adviser for Chelsea Financial, suggests Europe is “out of the doldrums” and ready to make more investments. With more money to spend, UK citizens are putting money into China.
The worst performing funds for the period were mostly bond funds, with indexes posting small-term losses. Bond funds were followed by the gifts sector, money market funds, and global bonds, which returned a measly 2%.
“There’s nothing particularly exciting or enticing about the bond world,” said Ben Yearsley, a director at Shore Financial. “It doesn’t feel like we’re motoring, but it doesn’t feel like we’ll fall back into a recession either.”
Overall UK investor sentiment may be bullish in China but Connolly said that investment outlook for him is now “dangerous” with both bonds and equities being expensive. In addition, looming issues such as Brexit could come to the fore and affect Chinese investments in general.
The potential implications of Brexit are complex. This is because they hinge mainly on what economic actions the UK takes after separating itself from the rest of the Eurozone.
FXCM states that there would be trading implications in the UK simply because of its relationship with other countries as a major commerce partner. The aftermath of Brexit may not affect Chinese locals directly but UK investors will feel it in the next few years. If the UK opts for a hard Brexit, investors will not be able to do business freely with companies headquartered within the Eurozone.
UK economists were divided on whether or not investors should put their money in riskier investment vehicles in China now that the end of the year is nearing.
“This could lead to people making big investment losses, because we know that too many investors ignore risks and instead are swayed by strong past performance figures, which led to them investing near the top of the market,” said Connolly.
