International mutual funds earn 6% returns in a month! Should you invest or be cautious?

International mutual funds have topped the profitability chart and have delivered an average return of around 6.01% in the last one month. About 65 international funds or global funds have completed one month of existence on the market.

Among these 65 funds, nine offered double-digit returns. The three main funds were from chinese economy. Mirae Asset Hang Seng TECH ETF FoF earned the highest return of around 48.86% in the last month, followed by Edelweiss Gr China Equity Off-Shore Fund, which returned 23.61% in the same period. Axis Greater China Equity FoF gave a return of 21.74% in the last month.

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Mirae Asset Global Electric and Autonomous Vehicle ETF FoF and DSP World Mining FoF returned 13.75% and 13.20% respectively in the same time period. The other four showed returns between 10.73% and 11.62% in the aforementioned period.

International funds have been lagging for a long time, either being at the bottom of the performance chart even after delivering positive returns or giving negative returns in some horizons. Mutual fund experts believe that this recent performance is due to the announcement of a stimulus package by China which attracted FII inflows and the increase in FII liquidity pushed the markets to multiple highs and generated huge returns.

“Over the past month, Hang-Sang Technology ETFs have seen returns of over 40%, driven primarily by the broader market rally in Chinese markets due to the announcement of the new stimulus package. The announcement of the stimulus package by China attracted FII flows, and the surge in FII liquidity pushed the markets to multiple highs and generated huge returns in the last one month,” said Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth. The stimulus aims to increase liquidity, stimulate consumer spending and revitalize the real estate sector. This stimulus package will only directly benefit sectors such as consumer goods and real estate, but it is unclear how long it will stimulate. But going forward, this is not sustainable as this is a liquidity-driven rally but not due to any structural change in fundamentals, and their detailed stimulus package was not clarified on how long this will help their “reactivation plan and consumption growth.” he added. So far in 2024, international funds have offered an average return of 15.58%. Active Mirae Hang Seng TECHNOLOGY The FoF ETF ranked first and returned 41.49% in the said period. Mirae Asset NYSE FANG+ETF FoF returned 32.47%. The HSBC Brazil Fund lost the most, around 15.77% in 2024 so far.

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In the last three months, the profitability of these funds remained downward with an average return of 3.86%. Mirae Asset Hang Seng TECH ETF FoF earned the highest return of 42.68% in the last three months, followed by Kotak International REIT FOF, which returned 14% in the said period.

Given past performance, should an investor increase allocation to international funds right now? Which economies are likely to offer better returns?

The expert recommends not investing in these funds, especially taking into account the recent rebound. And if you invest in Hang Seng ETFs or Greater China funds, you should keep track of the Chinese economy.

“It is not recommended to invest in such funds, especially considering the recent rally, as this rally is due to liquidity but not due to any structural change in fundamentals. Even if you look at historical data, India has substantially outperformed other economies and generated higher returns than other international markets, including China,” recommended Shweta Rajani.

“India’s real GDP is expected to grow between 6% and 8% in the next 5 years and inflation is expected to be between 4% and 5%, with this, the growth of the India’s nominal GDP will be between 11% and 12% in the next 5 years and therefore, we expect Nifty 50 to grow at least 11% to 13% in the next 5 years. When investing in Hang Seng ETFs or Greater China funds, investors should follow the Chinese economy, its fiscal policies and its geopolitical relations with other countries,” he added.

In September, the US Federal Reserve gave a 50 basis point rate cut and signaled additional half-point cuts before the end of this year. This move by the US Federal Reserve came after recent indicators suggested that economic activity has continued to expand at a solid pace. Job creation has slowed and the unemployment rate has increased, but remains low.

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The Chinese government’s recent policy changes represented a significant step toward economic support. A 50 basis point cut in the reserve ratio for banks will free up liquidity and there is also the possibility of further rate cuts in the fourth quarter.

Is the stellar short-term performance of international funds the effect of the US Federal Reserve’s rate cut? What are the prospects of these funds?

Federal Reserve rate cuts generally affect all global stock markets, including China. One should not invest in any other global market other than India and if exposure to global stocks is taken in the portfolio, it should only be up to 5% of the overall portfolio, is what experts recommend.

“Rate cuts generally by the Fed impact all global stock markets including China, but the significant rally in the Chinese market is driven by the stimulus package and FII inflows. FIIs have been keeping money aside for a long time to invest in the Chinese market, this stimulus package triggered as a positive event to invest in Chinese stocks, but this transition is only short term and FIIs were optimistic and positive in the Indian market. markets and economy in the long run, if there is a sharp decline in the Indian markets, FII flows are expected to hit India again,” Shweta Rajani said.

He added: “We do not recommend investing in any other global market other than India as Indian markets are expected to grow at a healthy 12-13% over the next five years and domestic equity mutual funds, on average, will generate an additional 2%. -3% over Nifty 50, resulting in a return of 13-15% for the next few years; Still, if one wants to take exposure to global stocks in the portfolio, one can consider it only up to 5% of the overall portfolio.

International funds serve different broad international markets, raw materials, foreign indices, among others. Global markets that performed well are NYSE, NASDAQ, the United States and Taiwan. Other global markets, such as Hang Seng in Greater China, underperformed in the same period. In short, the performance of the plan will depend on which geography your money is invested.

That means you should pay special attention to your investments in international funds. Pay special attention to the geography or indices you are investing in.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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