15 Comments

I was getting sceptical on my decision to accumulate at dips in “Edelweiss Greater China Equity Off-shore Fund” and analysing the charts of “Schroder ISF Greater China”

Your article brings reinforcement to my belief that China economy will do better and will get good returns.

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Very concise write up. Thank you. Though I have one niggling doubt. You seem to be convinced that there is no structural change in the economy. As we keep reading Xi seems to be averse to the disproportionate inequality in society. So similar to the EdTech changes , how can we be sure there will be no fundamental structural changes to redistribute the wealth?

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Thank you!

Xi definitely wants China to have more equal wealth in the society but he wouldn't punish China's biggest wealth creators in the process. Chinese Tech giants are on par, if not better than US Tech giants. The tranfer of wealth from ultra rich to poor may happen by increasing taxes on personal wealth of the rich, not by taxing the business like Alibaba, Tencent etc. China wants to be self sustaining society with equal wealth distribution and a global super power on par with US. That wouldn't happen by destroying the Chinese tech empire.

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Hey, Tar! Thank you for a wonderfully informative and comprehensive article.

I had one small query, though: you mentioned that you have some amount of your portfolio in the Edelweiss Greater China Equity Off-shore Fund, which - being a fund of fund - includes the expense ratio of both, the underlying fund and this fund (1.43% currently, pretty high compared to other Indian equity funds). Moreover, it's taxed as a debt fund, so the long term capital gains would be 20% (of course, along with indexation benefit).

Based on these parameters, do you think that the fund can be justified well enough to compensate for these deductions, or would you believe that the returns from the Chinese index would be well above the Indian markets in the upcoming few years?

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Hi Ishan, Thank you!

China is a good hedge against other markets. Unlike Indian markets which follow major events in US, Chinese markets do not. As and when US Fed decides to raise interest rates, you can expect US and Indian markets to show some volatility but China as an economy is well insulated from these external forces. I believe the probability of good returns from this fund for next few years are quite high simply cause majority of it is invested into companies like Tencent, Alibaba, Wuxi, Xinyi, Baidu etc. while also having exposure to semi conductor companies like TSMC. The global shortage for semi conductors isn't going anywhere for next 2 years and TSMC is a world leader in foundry business. Personally find great margin of safety at current levels, thats why I keep SIPing into it and buy on major dips. You need to have a view of at least 7 years to invest in this. At 25% CAGR, investment becomes 10x in 10 years. The 20% tax rate and 1.43% expense ratio wouldn't have significant impact on quantum of returns in 7 to 10 years.

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A great fan of your work!! The next target of dragon would be healthcare and real estate. what do you think... will global investors shift to India??

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Thank you! I think some of the money from China will make way to Indian equities and even before this regulatory crackdown started, Foreign Investment Inflows to India were at an all time high across any EM market. Whether China continues with more crackdown or not, irrespective I see India as very well suited for the next decade or two. I have explored some of the reasons behind my bullish view in one of the earliest posts on this publication. You read it here. https://investkaroindia.substack.com/p/indiainvestment

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Also the Edelweiss GCOF has corrected just 20% from the top, unlike the China Dragon Index or the China Internet Fund which have corrected more than 50%. If tje hypothesis is that this is not structural, then surely these would offer better value?

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I am not sure if Kraneshare has EdTech names in it, most likely it does and thats why it has dropped 50%. I still like Edelweiss as its easy and has less headache. It also invests in Tiawan and greater china region, eg. TSMC. That's one of the reason why it has only corrected 20%. Tencent is now their major position and BABA has moved up in weight too. I like their approach and being in India is just easier to SIP into it.

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Excellent article. Personally I researched on Edelweiss Greater China Offshore Fund and started SIP after going through you article.

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Hi Tar,

Thank you for all the efforts to put up the article and your view point together.

I did read the 5 year plan article you shared and also read additional material (link below). I have slightly different view and would love to know your thoughts.

1. In the 5 year plan, I couldnt find any reference to China's intent to increase working urban population. The plan includes reducing urban-rural divide. The plan does talk about making education more accessible but does not mention reducing cost of education to achieve it. Could you please comment?

2. There may be different reasons for lukewarm response to repealing one child policy. Do you think cost of raising a child is most important out of those reasons? It must take lot resources (time, money, effort) to look after an ailing parent. Could lack of resources be a reason for people not opting for second child? If so, government's policy against EdTech firms may have a different rationale.

What do you think?

PS: I am not well read about the subject yet.

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Hi, great insightful artice. What are your view on Nippon India Hang Seng Bees ETF as an alternative to Edelweiss GC Equity fund. As you have mentioned in the article, education companies are not in Edelweiss GC portfolio but are present in Hang Seng index, how much different that could make? Also China's Evergrande have defaulted, how can this affect

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Thanks for the perspective Tar.

What are your thoughts on going for an internet focused fund instead, like a Kraneshare China Internet Fund in the US? The cuts are deeper and NAVs are rock bottom cheap. It is slightly more concentrated too.

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Hi Vineet, sorry for the late response.

You may go for an ETF, its a more balance approach, but please check what are the constituents of that ETF. Study at least in a basic way on the companies that make up that ETF before you decide to invest.

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