Ian Cowie: no regrets about selling my China investment trusts

Trusts investing solely in China were among the top performers in 2020, but our columnist is not feeling sorry for himself after selling last April. 

Laugh if you like, but I have no regrets about selling my China investment trusts last year and missing their subsequent explosive growth because I believe there is trouble to come. There’s no need to take my word for this; just listen to Janet Yellen, former chair of the Federal Reserve, America’s central bank, who was confirmed this week as US Treasury Secretary.

The first woman to hold either post told a Senate committee said: “China is clearly our most important strategic competitor. It’s been stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers.”

That’s strong language from such a senior official but it did not get the coverage it deserved because - how to put this politely - there has been so much excitement elsewhere in Washington lately. Even so, investors will soon have to decide which side we are on when the cold war between America and China heats up.

I say ‘when’ rather than ‘if’ because the coronavirus crisis has crucially inflamed tensions between both the world’s economic superpowers. You don’t need to believe conspiracy theories to accept that the virus was first identified at Wuhan in central China’s Hubei province.

Now remember that America is a country which scarcely recognises the concept of a blame-free accident. If somebody gets drunk at your party and trips over, you had better have insurance.

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Expect to hear a lot more in the years ahead about compensation for the catastrophic financial losses caused by the pandemic panic. China is clearly sensitive about the subject. Look at the way it lashed out at Australia for merely mentioning that there ought to be an international inquiry into how and where the virus started.

Coming down from the clouds, there is no denying that China bulls are enjoying a terrific run. JPMorgan China Growth & Income (LSE:JCGI) is the top performer in the Association of Investment Companies (AIC) Country Specialist: Asia Pacific ex-Japan sector over the last year with an eye-stretching total return of 131%.

Such stellar performance makes a modest premium of 1.3% above net asset value (NAV) seem a small price to pay. There is even an inflation-busting income to add to JCGI’s attractions, with the shares yielding 2.8%.

Perhaps perversely, I am glad I did not hold or sell JCGI. But there is no sparing my blushes about the fact I bailed out of Fidelity China Special Situations (LSE:FCSS) last April at 227p, largely prompted by revulsion at what was - and is - happening to the Uighur minority in western China.

Setting aside moral issues for a moment and focusing on the money, these shares now trade at 441p. Ouch.

At the same time, and for the same mixture of reasons, I sold two other China-heavy trusts; JPMorgan Asia Growth & Income (LSE:JAGI) at 359p and JPMorgan Emerging Markets Income (LSE:JMG) at 102p. They now trade at 536p and 154p, respectively. Double ouch.

It’s all especially irritating because I had been investing in China for more than 20 years. I first bought shares in what was then called Fleming Chinese investment trust in 1996 after a couple of business trips there before the handover of Hong Kong the following year. That trust went through various iterations before becoming JCGI today.

Here and now, I comfort myself with the reflection that I have done the right thing ethically - even if it feels wrong from a financial point of view at present. Also, I am less focused on short-term gains these days than that young chap all those years ago and more concerned with medium- to long-term capital preservation.

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As a general rule, I avoid the bearish predictions of doom that are so popular with other journalists because I usually find positive news and views more profitable.

But, like the economist John Maynard Keynes, when the facts change, I change my mind. Put another way, sometimes it pays to panic sooner than later.

Even so, I wish investors in China the best of luck - and suspect they may need it. Never mind my musings, in addition to Yellen here’s another high-flying expert flagging up trouble ahead.

George Magnus, the former chief economist at UBS who is currently working in the China Centre at Oxford University, said: “There are lots of reasons for why investors should have exposure to China, however, a lot of good news is already priced by markets.”

He claims fund managers have “a self-serving case to be bullish on China”, but adds that there is likely to be a “much more hostile global environment for China”. So perhaps my switch out of the world’s second-largest economy, which seems so wrong now, will eventually come right.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.