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3 Funds to Gain From China's Economic Recovery

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Despite a slew of dismal economic reports, leading agencies and banks across the globe expect China’s economy to rebound in the days to come. The International Monetary Fund (IMF) raised its yearly forecast for China in its latest report on the growth outlook for the major economies of the world.

Meanwhile, HSBC also recently vested its confidence in China’s ability to rebound amid global economic slowdown. Needless to say, China’s effort to stimulate its economy is slowly beginning to pay off. Under such encouraging circumstances, one should consider mutual funds from China.

IMF Raises 2019 Growth Forecast for China

Per the latest World Economic Outlook report released on Apr 9, the IMF increased its growth forecast for China’s 2019 economic growth. The IMF projects China’s economy to grow by 6.3% in 2019, higher than its previous forecast of 6.2%.

The global agency believes that improving geopolitical situation on the trade war front and judicious lawmaking by Chinese officials to mitigate the slowdown would auger well for the country’s economy this year.

Notably, the upgrade in China’s growth forecast was made amid the downbeat projection for the global economy. In the same report, IMF lowered its global growth forecast for 2019 to 3.3%, 0.2% below its previous estimate in January.

HSBC Expects China to Remain Strong

In a report published on Apr 8, HSBC stated that it expects China’s economy to grow by as much as 6.6% this year. The bank believes that major stimulus to China’s economy would come from its private sector. The report also stated that “growth has bottomed and will gradually pick up in the coming quarters as the stimulus measures filter through.”

Meanwhile, China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) increased from 49.9 in February to 50.8 in March. The expansion was the fastest witnessed in eight months. On Apr 16, Beijing announced that its economy increased 6.4% year over year in the first quarter of 2019. The metric surpassed the estimated growth rate of 6.3%.

3 Best Fund Choices

Given such circumstances, we have highlighted three mutual funds that are poised to gain significantly from strength in the Chinese economy. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Matthews China Dividend Investor MCDFX fund seeks returns through income growth. MCDFX invests the majority of its assets in dividend-paying securities of those companies that are based in China. The fund not only invests in equity securities but also convertible debt instruments.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 16.1% and 12%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

MCDFXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.19%, which is below the category average of 1.63%.

Fidelity China Region FHKCX fund invests the majority of its assets in securities of Hong Kong, Taiwan and China issuers and other investments that are tied economically to the China region. It invests primarily in common stocks.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 15.3% and 7.9%, respectively.

FHKCX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.96%, which is below the category average of 1.63%.

Templeton China World Fund Class A TCWAX seeks appreciation of capital in the long term and invests the lion’s share of its assets in companies from China having different market capitalizations. The fund also invests in American, Global and European Depositary Receipts. Further, TCWAX may also invests about one-fifth of its assets in companies, which are not necessarily from China but would gain significantly from any economic developments in China, Hong Kong or Taiwan.

This Sector – China-Equity product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 15.3% and 7.9%, respectively.

TCWAXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.85%, which is above the category average of 1.63%.

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