Fears of accelerating inflation and slowing economic growth have forced Chinese shares to fall 10pc from their peak at the end of last year.
Formerly fashionable funds in the world's second-largest economy have suffered similar setbacks but opinion is divided about what will happen next. Is this a bubble bursting or a buying opportunity?
The Hang Seng index lost nearly 1.5pc of its value on Wednesday last week and investors in Gartmore China have suffered losses of 6pc during the past three months with similar setbacks at First State China Growth, which has proved a popular fund among investors.
One thing is clear, these funds are too volatile for any individual savings account (Isa) or Sipp investor who is going to lose sleep when prices fall. But some independent financial advisers claim counter-intuitively that this is a good time to consider Far East prospects.
Gavin Haynes of Whitechurch Securities suggested that the continued monetary policy tightening could act as a headwind to short-term investment performance and reckons that in the near-term it seems unlikely that the region will deliver the strong returns seen in recent years.
"While there are short-term concerns, this market cannot be ignored. By 2020 China is projected to make up more than 18pc of global gross domestic product (GDP) yet many investors have little or no exposure to the Chinese stock market,'' he said.
"With the Western consumer under pressure, Chinese exporters will feel the pinch and I believe domestically focused companies represent the most attractive opportunities. These include companies that can exploit urbanisation in China, which is projected to have 100 cities with a population of more than three million people by 2020.
Mr Haynes favours the First State Greater China Growth fund, which includes exposure to Taiwan – a market it currently sees opportunities in – and is managed by the highly regarded Martin Lau. For broader Asian exposure, he recommends Newton Asian Income which he says is a solid choice that focuses on dividend-paying companies in the region.
Alan Steel of Alan Steel Asset Management seemed to have his mind on dinner. He said: "Recent numbers show China's economy is still sweet even as inflation is turning sour and there's a growing number of pessimists who think their bright future will dim sum more – but those taking China off their menu now may look like dumplings later this year.
"Look at the figures. China's exports are up 42pc year on year and its imports have risen by 55pc. This does not look like an economy that is stalling. If you are prepared to take a long view and are not overweight with Far East funds already, adding some now to your Isa to give it some spice makes sense – especially as the correction we all expected has arrived and you can buy units a bit cheaper.
Mr Steel said investors should stick to the set menu. He recommends Angus Tulloch and Martin Lau at First State; Robin Geffen's team at Neptune or Graham French and colleagues at M&G Global Basics will deliver the goods. "Don't let short-term bad news get in the road of the fact that global growth is still the driving force and the engine driving it is still in the Far East," he added.
However, not everyone is bullish and Patrick Connolly of AWD Chase de Vere is more cautious. He reminds investors that strong economic growth doesn't necessarily mean that stock markets will provide future stellar returns and investing in these regions is high risk. He also warns that there is still a considerable amount of hype surrounding China and it is often put forwards as the next big investment opportunity.
"It should be remembered that the last big investment opportunity was technology funds, and many investors got their fingers well and truly burned there," he said. "History shows that trying to chase the next winners often leads to investors making poor decisions and losing money. Even for the most aggressive investors we would typically limit exposure to the Far East to 20pc of their portfolio.
Mr Connelly likes Fidelity South East Asia, which is currently 27pc invested in China and doesn't invest in India or Australia. He also likes First State Asia Pacific Leaders, which is currently 38pc in China, but does have 18pc in Australia and a small weighting in India.
John Kelly of Chelsea Financial Services also urged Isa investors to be wary of placing too much faith in macroeconomic statistics. "For all the talk of Chinese growth it has been a difficult 12 months for investors – over that period, the Chinese stock market returned only 3.8pc. Meanwhile, the FTSE 100 delivered a very healthy 17pc.
"There are question marks over future growth. Predictions are grim. Some forecast that land values could fall by half. However, all things considered, I believe there is a strong case for investment over the long term. The shift from West to East is undeniable, and I believe foreign investment and a growing middle class will continue to power growth."
For those who are worried about China, advisers recommend a broader approach to emerging markets rather than trying to focus on any one nation.
Mr Kelly added: "First State Asia Pacific Leaders looks to buy the best companies across Asia. If you want to take a further step back you could look to funds that invest in companies operating in more developed economies that are getting a degree of exposure to the China story – for example, Rathbones Global Opportunities and M&G Global Basics."
Long-term China-watcher Mark Dampier of Hargreaves Lansdown put the current panic in perspective. He said: "Given all the bad press on China, you would have thought the market was at record highs and trading on sky-high valuations.
"The reality is that the market is still 30pc below its highs and the typical share is priced at 12 years' earnings. This hardly seems like bubble territory, does it?"
