Fledgling China QFII funds beat market

By Jeffrey Hodgson

HONG KONG (Reuters) - Managers of funds giving international investors access to China's often-volatile mainland shares have so far achieved what every stock picker dreams of -- consistently beating the markets they invest in.

These funds, which invest via the country's Qualified Foreign Institutional Investor (QFII) scheme, have on average produced higher returns than China's domestic A-share market, according to data from fund research firm Lipper Inc.

That may reflect the less-developed nature of Chinese markets where the quality of companies is mixed and many retail investors are inexperienced, say analysts, who caution the trend won't necessarily continue.

"In China, the fund managers have more information and better investment skills compared to other investors, so it is not so difficult for the fund manager to beat the average level of the market," said Zhou Liang, a Shanghai-based Lipper research analyst.

Data from Lipper, a Reuters company, shows that QFII A-share funds on average gained 52.61 percent in yuan terms, or 58.51 percent in the currency they are denominated in, in the two years to July 31. That compares with a 16.34 percent increase in the benchmark Shanghai composite index .SSEC.

The funds on average also beat the index in the six months, one year, and 18 months to June 30.

(For a table of China's main QFII A-share funds, click nPEK88158

The sector's top performer is also its oldest. The $254.37 million Martin Currie China A-Share fund, launched in September 2003, has risen 68.28 percent in the two years to July 31.  Continued...