While China was seen as a lucrative market to invest in during the tumultuous past year, experts say investors are being burned by the recent slowdown to the Eastern giant’s economy.
This is because a £1,000 investment into an average Chinese fund at the start of the year would net a negative £182 if you cashed it in today.
However, it was not poor judgement that found investors pouring money into Chinese markets. The region has grown by 281 percent in the past ten years, according to official figures.
The blinding speed of growth has long since left behind the economies of ‘developed’ countries, such as the UK and the US, in terms of growth.
Though the Chinese economy slumped 17 percent since January, it has bounced back 11 percent since October.
Currently, £1.6 billion is held in specialist China funds, with a further £11.5 billion in emerging market funds that invest heavily in China, according to figures from the Investment Management Association.
However, dire performance figures from last week are a reminder that no matter how ‘booming’ an economy is, there is always great risk, particularly in developing markets.
Optimism in the Chinese market is being severely tested, especially by fund managers like Anthony Bolton, who lost £289 for ever £1000 investment earlier this year.
China’s poor economic figures of late are heavily linked to the West, which has already been in a slowdown for months. As economies in Europe and the US struggle for even meagre growth, Western demand on China’s export-led economy is slowing down considerably.
China, the world’s second largest economy, is also facing growing concerns about the government’s restrictions on lending to consumers and businesses, which is hurting domestic growth.
In addition, many experts in China are bracing themselves for a massive collapse in the property market that may be coming soon.
Other one-off events, such as allegations of fraud in several Chinese companies, have left a hole in the pockets of hopeful British investors. One firm involved, China Integrated Energy, has now lost 90% of its market value after fraud accusations.
Experts say even while the Chinese economy was an unstoppable force earlier in the year, investing in Chinese shares has always been difficult. Since the big companies are all owned by the state, the government has a tendency to ignore shareholders and profits in order to do what it feels is best for the country.