After years of outstanding performance, funds investing in China have suffered sharp falls in recent months. The MSCI China index peaked at the end of October last year and has since fallen 27 per cent to the end of May.

India, its fellow emerging Asian giant, has also taken a tumble, falling 19 per cent over the same period. Over these past seven months funds investing in China and India have substantially underperformed rival funds focusing on the UK, US, and Europe.

Ash Kumar, of Morningstar, the fund research group, says the principal reason for this sudden setback is the growing fear that the sinking US economy will drag the rest of the world into recession and that, despite their growing strength, China and India will not be strong enough on their own to overcome the drag on global growth caused by a recession-hit US economy. On the domestic front both Asian superpowers are having to grapple with the problem of inflation.

The recent setbacks in the Chinese and Indian stock markets serve as a timely reminder that nothing goes up forever. Investors who had hitched themselves aboard the bandwagon of the Asian superpowers and imagined it would provide them with an effortless ride to riches have had a nasty jolt - and learned a valuable lesson.

However this does not mean that the attractions of China and India have disappeared overnight. They still boast two of the fastest-growing economies in the world, they export heavily into western markets and they are building up an increasingly important consumer market in their own countries. China and India remain outstanding long-term investment opportunities - a fact reflected by Asian fund managers’ readiness to raise their percentage holdings in the two countries despite the recent market setback.

What the sharp downturn in Asia shows is that there is no such thing as a one-way bet and that high reward goes with high risk and high volatility. There is every chance that someone putting a lump sum today into the Chinese and Indian stock markets will be considerably richer in 10 or 20 years’ time, but the ride is likely to be a rocky one. Those looking for a slightly smoother path to prosperity, while still gaining exposure to India and China, might choose to go for a wider-based Asia Pacific fund.

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