As you know I timed my original entry point into Chinese equities well, getting in just before the market soared 15% in mid April. So why am I troubled? The reason is because, as I've pointed out before, the Chinese stock market is in a bubble. Yet it is now showing increasing signs of lunacy. We've seen companies' shares plummeting 50% in a single day. We've also seen property companies simply change their name to imply that they are involved in the technology sector, when they are not. Their share price soared, simply as a result of Chinese investors scrambling to buy anything tech related. There are even tales of traders paying people to borrow their identities so that they can open up multiple trading accounts, fuelling the rally further. I could go on.
Yet there are reasons to still be positive on China, including the likely launch of an extension to the cross-border link between Hong Kong and Chinese stock markets. If that happens then hang on to your hats.
So after much consideration I've decided to reduce my China exposure by half. That is I've sold 50% of my holding in the Henderson China Opportunities fund and decided to reinvest it elsewhere.
If you remember from my DIY investment course selling your winners is as important as selling your losers. At the time of writing my holding in Henderson China Opportunities was in profit despite a sizeable pull back in the Hong Kong stock market since last month's rally (remember that most China funds invest in Chinese companies via the Hong Kong stock exchange).
Over that time the stop loss alerts on the China funds in the 80-20 Best of the Best selection have been triggered. I've taken that as a sign to take a bit of profit and reduce my China exposure (or in other words begin dripping out of the market).
Chinese equities still have the potential to make strong returns but by dripping out now I reduce the chance of getting hit badly when the market inevitably turns. Yet there is another reason. When looking at the performance of my portfolio since my last fund switch two of my new funds (Henderson UK Smaller Companies and M&G Japan) have been among the strongest performers. So I've decided to reinvest the proceeds into areas of my portfolio currently doing well i.e. those two funds.
My portfolio as a whole is up 2% since launch which I'm very pleased with given that I invested at the worst possible time - the top of the market. If I keep that up for the rest of the year I'd be looking at a return of 8% which would be brilliant. It is a big 'if' of course. It's important to remember that this is a marathon and not a sprint and we've barely got off the start line.
So my portfolio now looks like this:
- 8.75% Henderson UK Smaller Companies
- 13.5% Old Mutual UK Mid Cap
- 15% Fidelity Multi Asset Defensive
- 14% 7IM Balanced
- 3.5% Henderson China Opportunities
- 15% JPM Cautious Managed
- 14% Jupiter European
- 16.25% M&G Japan
