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China’s benchmark Shanghai Composite Index hit the best levels since May 2008 recently, on expectations of more stimulus measures. The Shanghai Composite Index gained a significant 7.3% last week. It is not only the U.S. Federal Reserve’s pledge to go slow with hiking rates that drove markets, but the second-largest economy’s bright spots are also worth the cheer. Key economies including the U.S., Europe, Japan have maintained loose monetary policies. This has helped global equities. China’s markets too have been gaining recently on promises to implement necessary stimulus measures in case growth was significantly affected. Meanwhile, IMF Managing Director Christine Lagarde acknowledged that the fate of Chinese economy and the global economy are related. China is making efforts to transform into a self-sustaining economy banking on domestic consumption. Employment and services have been attributed to be the bright spots, and the slowdown is stabilizing according to Vice Premier Zhang Gaoli. This comes after Premier Li Keqiang reassured that his government would take further steps to manage the economic situation. Thus, China promises to be a growth opportunity now for mutual fund investors. China had braved loads of dismal economic data last year to clock significant gains for the benchmarks. The markets’ rally has continued this year, handing yet another profit opportunity for mutual fund investors. Bright Spots for Economy China’s political leadership had previously expressed satisfaction with a lower level of growth. The country seeks a path of slower but sustainable prosperity even as it transitions from an export-led manufacturing economy to one which depends more on services and domestic demand. Vice Premier Zhang Gaoli acknowledged that the downward pressure has increased since the start of 2015. He also said that it is “impossible and unnecessary to maintain the high-speed growth seen in the past.” China’s economic growth is forecasted to cool down to 7% in 2015 from 7.4% in 2014. This would be a multi-year low. Nonetheless, Zhang Gaoli pointed out employment, services, high-tech industries, new industries, private investment and innovations to be the bright spots. The slowdown was also said to be slowing down now. The slowdown is seen as “new normal” and a “higher quality” of expansion by President Xi Jinping and others. Lagarde said: “Now indeed, China navigates this new normal of its own economy; it contributes more to the global common good and to economic and financial stability as well”. Zhang Gaoli reaffirmed that China would keep the monetary policy “not too tight and not too loose”. The country will focus on targeted adjustments. Monetary Stimulus Assurances Premier Li provided reassurances that his government would take further steps to manage the economic situation. This included steps to boost growth, combat deflation as well as deal with other important economic issues. Speaking about the economy, he said that the government was attempting to take a middle path, striving to boost growth and simultaneously implementing major structural reforms. Premier Li added that the country will successfully leverage the lower cost of borrowing to ease China’s transformation from an economy driven by exports to one powered by higher consumer demand. The focus will then shift to consumers and the services sector. Previous Stimulus Measures In Nov 2014, the People’s Bank of China (PBOC) announced its surprise decision to reduce interest rates. This was the first reduction in rates undertaken in more than two years. Market watchers were taken by surprise because since that time, the PBOC had stuck to more moderate stimulus measures. This was followed by further monetary easing in February. The People’s Bank of China announced that it was reducing the reserve ratio by 50 basis points. Analysts said that the central bank’s move followed a series of weak economic reports. This indicated that other measures might be needed to be taken by the government to boost the economy. 3 Funds to Buy Here we will list 3 top China mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. These funds also have encouraging 1 year and 3-year annualized returns. The expense ratio for each of these funds is lower than their category averages. Fidelity Advisor China Region Fund A (MUTF: FHKAX ) seeks capital appreciation over the long run. The fund invests a lion’s share in companies based in Greater China. The fund invests a maximum of 35% of its assets in industries that account for over 20% of the Hong Kong, Taiwanese and the Chinese market. Factors such as financial strength and economic condition are considered to invest in common stocks of companies. FHKAX carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 14.8% in the last one year and the three-year annualized return stands at 13.7%. It carries an annual expense ratio of 1.35% as compared to category average of 1.78%. However, the fund has a front end sales load of 5.75% as compared to category average of 5.33%. It carries no deferred sales load. AllianzGI China Equity Fund A (MUTF: ALQAX ) invests most of its assets in equities of Chinese companies. These Chinese firms may be incorporated in China, or earn at least half of their revenues/profits from businesses in mainland China, or own half of their assets in the region. ALQAX carries a Zacks Mutual Fund Rank #2 (Buy). The fund has returned 17.6% in the last one year and the three-year annualized return stands at 7.7%. It carries an annual expense ratio of 1.70% as compared to category average of 1.78%. However, the fund has a front end sales load of 5.5% as compared to category average of 5.33%. It carries no deferred sales load. Matthews China Fund Investor (MUTF: MCHFX ) invests a majority of its assets in common and preferred stocks of companies located in China. This includes companies based out of Hong Kong and other Chinese administered regions. It seeks long term capital growth. MCHFX carries a Zacks Mutual Fund Rank #2 (Buy). The fund has returned 10.3% in the last one year and the three-year annualized return stands at 2.4%. It carries an annual expense ratio of 1.11% as compared to category average of 1.78%. The fund has no front end or deferred sales load.