China funds give up to 53% returns in a year: Should you look to invest?

After delivering muted performance in the previous few years, domestic mutual funds focused on Chinese markets have sprung back to life in the last one and a half years.

Data available with ACE MF, a mutual fund research platform, shows that China’s Shanghai Composite Index and Hong Kong’s Hang Seng Index have gained up to 35 percent each on a one-year basis, comfortably beating Indian benchmarks Nifty and Sensex over the same period.

Over the past two years, China’s central bank and financial regulators have implemented policy measures to rejuvenate the struggling property sector, address the slowing economy, and tackle deflation. This shift in policy has triggered a notable surge in Chinese stock markets.

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According to a report by Angel One, China’s markets have led the actual macros, as is always common. “Stimulus is turning out to be piecemeal but valuation comfort, revival in earnings and general optimism towards EMs (emerging markets) have created a strong opportunity in the region,” it said in a note.

Uneven performance

There are four mutual funds specifically focused on the Greater China region, which includes mainland China, Hong Kong, and Taiwan.

Data shows that Mirae Asset Hang Seng TECH ETF has been the best performing China-focused fund with a one-year return of 53.3 percent, till June 30, 2025. It was followed by Nippon India ETF Hang Seng BeES (43.4 percent) and Edelweiss Greater China Equity Off-Shore Fund (19.9 percent) and Axis Greater China Equity FoF (17.2 percent).

However, returns of these funds have been uninspiring on a longer-term basis. The best performing fund on that period has been Nippon India ETF Hang Seng BeES with a compounded annual growth rate of 9.3 percent on a three-year basis.

Data further shows that years 2021, 2022 and 2023 were bad for China-focused funds.

Headwinds such as the property downturn, Covid-19 flareups and restrictions, and deceleration of export growth due to the negative impact of the global slowdown have affected the Chinese economy significantly, and in turn returns from markets during these years.

 

There are two Exchange-Traded Funds (ETFs) that directly invest in Greater China stocks and two fund of funds (FOFs) that invest in global invest that in turn invest in stocks from the country.

Mirae Asset Hang Seng TECH ETF

The fund, which has assets under management of Rs 365 crore (as of May 2025) invests in Hang Seng TECH Index that represents the 30 largest technology companies listed in Hong Kong that have high business exposure to technology themes. The Index includes the 30 largest technology companies listed in Hong Kong.

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The top 5 stocks in the index are Tencent Holdings (8.68 percent), Xiaomi Corporation (8.62 percent), Alibaba Group Holding (7.62 percent), Meituan Dianping (7.32 percent) and JD.Com (6.88 percent).

Nippon India ETF Hang Seng BeES

The fund, which has an AUM of Rs 865 crore invests in the companies listed on the Hang Seng Index. The index is most widely quoted gauge of the Hong Kong stock market, and includes the largest and most liquid stocks listed on the main board of the stock exchange of Hong Kong.

There are 83 stocks in the index presently.

The top 5 stocks in the index in terms of weightage are Tencent Holdings (7.89 percent), HSBC Holdings (7.81 percent), Alibaba Group Holding (6.93 percent), Xiaomi Corporation (6.29 percent) and China Construction Bank (5.35 percent).

Axis Greater China Equity FoF

The fund, which has an AUM of Rs 513 crore, invests in Schroder ISF Greater China Class X Acc, a fund by British multinational asset management company. The fund invests in equities listed in mainland China, Hong Kong and Taiwan. There were 82 stock holdings as of May end.

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Data shows that China had the highest representation in Schroder ISF Greater China Class X Acc fund at 68.8 percent, followed by Taiwan at 19.3 percent and Hong Kong at 9.2 percent.

The top 5 stocks in the index are Taiwan Semiconductor Manufacturing (9.8 percent), Tencent Holdings (9.5 percent), Alibaba Group Holding (6.1 percent), AIA Group (4.7 percent) and Meituan (2.7 percent).

Edelweiss Greater China Equity Off-Shore Fund

The Edelweiss MF’s scheme is the biggest fund in the category with an AUM of Rs 1,820 crore. The fund invests in JP Morgan Funds – Greater China Fund. The fund invests primarily in companies from the People’s Republic of China, Hong Kong and Taiwan – Greater China.

There are 61 stock constituents in the index with China’s weightage of 63.5 percent, Taiwan at 32.9 percent and Hong Kong at 3.4 percent.

Top stocks in the index are Taiwan Semiconductor (9.9 percent), Tencent (9.5 percent), Alibaba (7.0 percent), Xiaomi (4.0 percent) and NetEase (3.0 percent).

How to invest?

Note that in February 2022, the Securities and Exchange Board of India (SEBI) had advised mutual funds investing in overseas securities to stop further investments in foreign stocks to avoid breach of industry-wide overseas limits.

The regulator has specified an overall industry level limit of $7 billion for mutual funds to invest in overseas securities and funds and a separate limit of $1 billion for invest in overseas exchange-traded funds (ETFs).

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Further, the Association of Mutual Funds in India (AMFI) in June notified that mutual fund schemes may resume subscriptions and make investments in overseas funds /securities up to the headroom available without breaching the overseas investment limits as on 1 February 2022.

As of now, funds of Axis Mutual and Edelweiss Mutual Funds are only accepting funds via Systematic Investment Plans (SIPs), while funds of Mirae Asset Mutual Fund and Nippon India Mutual Fund are closed for subscription.