Chinese funds are struggling. Is there hidden value in them?

livemint.com:

What went wrong? Chinese funds were seeing a sharp recovery between November 2022 and January 2023 as mentioned earlier. The recovery was triggered as China eventually started to ease covid-related restrictions in November. But, since then, the performance of Chinese funds has been weak.

For instance, Edelweiss Greater China Off-Shore Fund, which is the largest and oldest fund in the category (see graphic), has delivered negative returns of 12.7% in the year-to-date period. Nippon India ETF Hang Seng BeES has delivered negative returns of 10.7% in the same period. Mirae Hang Seng TECH ETF saw a dip of 11.3%, while Axis Greater China Fund of Fund (FoF) declined 10%.

The weakness in the returns of these funds can be attributed to a slowdown in China’s economic recovery. According to Nomura’s report, China’s post-covid recovery has been a concern. Following the scrapping of the zero-Covid policy, the economy saw a rebound, but the report points out that not all data points coming out of China have been encouraging.

“Activity data in April and high-frequency data in May showed that the recovery has been losing steam, partly due to weak confidence among consumers and business investors," Nomura said in its report. This data refers to manufacturing and services activity. To compound matters, China’s property sector, accounting for one-third of China’s GDP (gross domestic product), is going through a debt crisis.

The large number of defaults by private property developers have led to unfinished residential units, non-performing loans for banks and loss of employment for those working in the property sector. The slowdown also doesn’t bode well for related sectors such as building material suppliers. However, recent data points